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Chattel mortgages are loans that are used to purchase a movable object, like a manufactured home, mobile home, or a piece of heavy equipment.
So if a borrower wants to purchase a mobile home that is in a trailer park and the home is on land that does not belong to the borrower it is termed as personal movable property.
The lender gives the borrower a loan, with a lien on the mobile home, the lien will be released after the loan, and interest is paid off.
The lender owns the home until it is paid off so if the borrower defaults on payments, the lender can sell the home to pay for the remainder of the loan.
Another example is if a borrower owned a large farm and wanted to buy a new tractor. The lien on the loan will be the tractor.
The lender would own the equipment until it is paid off and if the borrower is unable to pay off the loan, for some reason the lender could sell it and get their money back.
A chattel mortgage allows people to purchase products beyond their financial reach or to secure business equipment that is expensive.
The loan is for a shorter term compared to traditional mortgages. The maximum term is of twenty years.
The interest rate is also higher because of the higher risk for the lender. The interest is usually tax-deductible, so at the end of the year, the borrower will get some amount back in tax breaks.
The payments can be adjusted. The borrower can continue with a fixed amount for the entire length of the contract.
Or can be set up as per the borrower’s cash flow, if you own a business or farm, and based on earning during certain seasons the payment can be managed.
A chattel loan is beneficial when a normal loan cannot be obtained. Though the rates of interest are higher, the bright side is, with the payment getting done faster the borrower can take possession quickly.
Reference Source: Econo Times
