Building and loan associations, also known as savings and loan associations or thrift institutions, are financial institutions that specialize in making loans to customers for the purpose of financing the construction or acquisition of residential properties. These associations primarily focus on providing funding for housing needs, but they can also extend their services to commercial real estate projects.
Building and loan associations are typically organized as member-owned cooperative organizations, where individuals pool their savings and investments to create a common fund that can be lent out to others within the association. Members of these associations are often referred to as shareholders, as they have a stake in the collective ownership and operation of the institution.
The primary function of building and loan associations is to provide long-term mortgage loans to individuals or businesses looking to purchase property for residential or investment purposes. These loans are typically repaid over an extended period, usually spanning several years or decades, with interest rates determined by prevailing market rates and the individual's creditworthiness.
Traditionally, building and loan associations emphasized the concept of thrift and encouraged members to save regularly by allowing them to earn interest on their deposits. In addition to lending activities, these associations also accept deposits from members and the public, enabling them to provide loans to borrowers. This reciprocal relationship between borrowers and savers forms the foundation of the cooperative nature of building and loan associations.
Overall, building and loan associations play a crucial role in facilitating access to housing finance for individuals and businesses, providing a key source of capital for property acquisition and construction projects.
