There are various loan options available when you are thinking of borrowing money for personal use, a quick cash flow, or a business. You can get access to more capital by using the property as a security option. Options expand even more in the case of fast business loans. Here is a guide on the basic difference between mortgage and caveat loans. Let us get started.
What is a caveat loan?
A caveat loan is funding that one can secure against a property’s equity value. It is also known as an unregistered second mortgage or an equitable mortgage. You can use your commercial or residential property to secure a loan against the value of the asset. A caveat gets lodged against the title deed of your property after the approval of your application. Without the bank's consent, you can register a caveat behind the existing mortgage.
A caveat is a secured loan where you can use the property as a security. The caveat will prevent any other dealings on the property until the loan is repaid. It means you can use a property for a caveat loan only once at a time. Upon repayment, the caveat gets removed, and the property is again free to be used for another loan if needed. You can apply for a fast caveat loan to meet your urgent cash needs. They are quick to apply for, less documentation is required, and approval is easy.
What is a mortgage loan?
Mortgage financing is another long-term funding option. Funds can be used for any purpose however the most popular is to purchase property. Traditionally, home mortgages given by banks are long-term, usually 20 to 30 years. But now there many alternative short-term mortgage loans available with durations varying from 12 months.
Once your loan is approved a mortgage is lodged over the property. You can use the same property to take a second mortgage from another lender if the need arises. For repayments, priority is given to the first mortgage lender. The first mortgage lender gets paid back first, and then the second mortgage lender gets paid from the remaining funds.
Primary differences between mortgage and caveat loans
Both of these loan types use the property as security. But there are a few differences between the two. Let us have a look at the key differences.
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The application process
Getting approval for a mortgage can be a tedious task. Qualifying criteria that are imposed on applicants can be hard to meet, making the process more time-consuming and rigorous. Securing a caveat loan, on the other hand, is much simpler. Various private lenders in Australia are available to grant you quick access to funds.
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Using property as security
In both loan types, the property gets used as security. With caveat loans they can settle very quickly as you do not require consent from the existing first mortgagee to lodge the caveat. This process if required can be very time consuming. A caveat loan will get you access to funds quickly without the hassles. Traditional mortgage funding does require consent for a second mortgage and the set up times are much longer.
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Flexibility
Caveat loans are more flexible. The duration of caveat loans is between 1 - 12 months. The mortgage has a much longer repayment duration and can be for as long as 30 years.
Summing it up
If you own a property, you can use it to secure funding for your business or personal finances. Whether applying for a mortgage or a caveat loan, approach a reliable lender and understand all the terms and conditions beforehand. Both loans are a great source of financing and may suit different people in varied ways.