A multi-year loan typically used for purchasing land is called

A multi-year loan typically used for purchasing land is called

• A. Mortgage
• B. Line of Credit
• C. Short-term loan
• D. Lease

Answer: (A)

When you buy land with a loan that stretches over many years, the typical financing is a mortgage. A mortgage is a loan secured by the real estate being purchased, so the land itself serves as collateral. Because the asset is valuable and the loan term is long—often 15 to 30 years—the payments are spread out, usually with a fixed schedule that gradually reduces the principal while covering interest. This arrangement lets a farmer acquire land and build equity over time. Other options don’t fit the land-purchase scenario as neatly. A line of credit is a flexible, revolving borrowing arrangement you can draw on and repay repeatedly, not a single loan tied to a specific asset. A short-term loan is repaid in a much shorter period, which isn’t practical for the high cost and long payoff horizon of land. A lease means renting the land without transferring ownership, so you don’t gain long-term equity in the property.

When you buy land with a loan that stretches over many years, the typical financing is a mortgage. A mortgage is a loan secured by the real estate being purchased, so the land itself serves as collateral. Because the asset is valuable and the loan term is long—often 15 to 30 years—the payments are spread out, usually with a fixed schedule that gradually reduces the principal while covering interest. This arrangement lets a farmer acquire land and build equity over time.

Other options don’t fit the land-purchase scenario as neatly. A line of credit is a flexible, revolving borrowing arrangement you can draw on and repay repeatedly, not a single loan tied to a specific asset. A short-term loan is repaid in a much shorter period, which isn’t practical for the high cost and long payoff horizon of land. A lease means renting the land without transferring ownership, so you don’t gain long-term equity in the property.