Basics of a Mortgage

• A co-op mortgage is one in which many people have a stake in the mortgage. This type of mortgage is common when there are multiple owners that each own a portion of a property. In these sorts of situations, a corporation is set up which then holds the mortgage. People that then want to have a portion of the relevant property--such as a condo--then buy shares of the corporation. Then, instead of owning a specific portion of the property, an owner then owns a portion of the corporation which corresponds to the size of the property.
  
  

How A Co-op Mortgage Works

• A co-op mortgage is one that is held by a corporation or a co-operative. The co-operative works as a legal entity for the purpose of owning the building. Then, when a tenant wishes to move in, that person purchases a certain portion of the collective. At this point, the individual that is moving in assumes part of the mortgage as a result of owning a stake in the company. The payments that individual makes go towards paying for the mortgage. In general, co-op mortgages tend to be interest only-mortgages. After 10 years, the entire balance of the mortgage is usually due.
  
  

Advantages and Disadvantages of Co-op Mortgages

• In many cases, in order to get a co-op loan, the building must be smaller than four stories tall and require more than half of the tenants to own a stake in the building. There can also be an issue in that shareholders do not own actual real estate, but the shareholders can instead own a portion of a company that does. These types of organizations often require a board of directors to help make decisions on behalf of the rest of the co-operative. On the other hand, these types of mortgages allow people to have a stake in small portions of a building that they could otherwise not afford. A co-op mortgage also allows better bargaining power as a collective than various individuals could obtain on their own.