COMBINATION LOAN Meaning and
Definition
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A combination loan, also known as a combo loan, refers to a type of financing arrangement where an individual or organization secures two or more loans simultaneously to fund a large purchase or investment. This loan structure combines different types of loans, typically a first mortgage and a second mortgage, to provide borrowers with flexibility and potentially better terms.
The most common form of a combination loan involves obtaining a first mortgage, which is typically a traditional mortgage loan issued by a lender to finance a portion of the property's purchase price or value. Alongside this, a second mortgage is acquired, usually in the form of a home equity loan or a home equity line of credit (HELOC), to cover the remaining amount.
By combining these two loans, borrowers can achieve several advantages. Firstly, they can often obtain a higher loan-to-value ratio, which enables them to finance a larger proportion of the property's value. Secondly, borrowers may benefit from lower interest rates on the first mortgage compared to other types of financing, resulting in reduced borrowing costs. Lastly, a combination loan can allow borrowers to avoid paying private mortgage insurance (PMI), which is typically required for loans with a loan-to-value ratio of over 80%.
It is important to note that when obtaining a combination loan, borrowers need to carefully evaluate the terms, interest rates, repayment periods, and potential risks associated with both the first and second mortgages to ensure they are suitable and manageable for their financial circumstances.
Common Misspellings for COMBINATION LOAN
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Etymology of COMBINATION LOAN
The word "combination loan" does not have a distinct etymology on its own. Instead, it is a combination of two separate words: "combination" and "loan".
The word "combination" comes from the Latin word "combinare", which means "to combine". It entered the English language in the 15th century. "Combination" refers to the act of joining or bringing together different elements or factors to create something new or more comprehensive.
The word "loan" comes from the Old Norse word "lán", which means "loan" or "lending". It entered the English language in the 13th century. "Loan" refers to the act of lending money or any other item with the expectation of its return.
Thus, when combined, "combination loan" refers to a type of loan that combines or brings together multiple elements or factors into a single loan package.
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