Understanding Trust Deeds
When entering the realm of real estate, you will inevitably need to understand trust deeds and how they work. We’ll answer both of those questions below.
What is a Trust Deed?
A trust deed is a deed held on a property. The trust deed is not held by a so-called borrower or lender, but by an independent entity better known as a trustee.
How Do They Work?
The trust deed is better known under the term “promissory note.” This promissory note basically asks the borrower to repay a certain amount of money within a given time period.
What Else Do They Include?
A trust deed will also specify a number of details including the amount of the loan, the applicable interest rate, repayment frequency and the time period in which the borrower is obligated to repay the agreed amount. In addition to that, the trust deed describes any penalties that will be implemented when the conditions are not adhered to.
In order to take advantage of the promissory note, the lender has to take out a loan or purchase an existing promissory note. The loan can be acquired from a private lender, but can also be arranged by a real estate broker. For that reason, the conditions of the trust deed may heavily depend on the conditions and requirements of the lender or private entity.
Even though a trust deed may be a good alternative for a traditional loan, especially for people who cannot acquire a loan for themselves, they are accompanied with a number of risks. Compared with other lending options, the trust deed is right on par with other popular lending solutions.