So you already have a mortgage out on an existing property, perhaps your primary residence, and now you want to take out a mortgage for another purpose, such as to purchase a vacation home or to buy a multi-family dwelling that you can rent out for another income stream. If you’ve been paying that first mortgage out for several years now, it is likely that you have a fairly significant amount of equity built up in that property, and using that equity as part of your down payment on the new purchase is something that many of our clients do. One way that you can do this is to take out a home equity loan or home equity line of credit (HELOC) on the first property and use it to help you purchase the second. Another is to consolidate multiple mortgages so that you just have one payment going out each month, one that satisfies the mortgage for both properties. Combining two mortgages into one can be a creative way to simplify your financial picture and keep your interest expenses low by drawing on a loan that you have already established a solid record for paying to this point.
Another way to refer to combining two mortgages into one is the “blend and extend” strategy. This involves going back to the lender that holds your first mortgage and finding a way to extend that financing forward with the second loan attached as well.
Here’s an example. Let’s say you have a property with a current value of $750,000, and your first mortgage was for $450,000 at a rate of 3.25 percent, with the maturity on this note coming in three years. Your property value has increased since your purchase because you bought a home in an area that was on the rise. You go back to the lender and talk about lending. You qualify on the basis of the lender’s guidelines, and the appraisal comes back at $750,000. The lender will give you up to 80 percent of that value, which is $600,000. Your current mortgage balance is $450,000, which means that you could take out an additional $150,000 in funds. This $150,000 could come to you in a HELOC or it could be set up in a separate mortgage, depending on what you need the money to do.
Is the $150,000 enough for the down payment – or at least enough to combine with your savings and/or funds from other investors to make the next purchase? If so, then the other monies can go toward that purchase, while you make one consolidated payment on the debt you owe to your original lender. If you need to take out more equity than what the traditional lender will offer you, there are some private lenders who will work with you, but just bear in mind that your interest rate will be higher and your term will likely be shorter – usually something between six months and two years. If you find yourself in this situation, talk to Amansad Financial. We have relationships and underwrite for private investors and private lenders that are looking to work with people in your situation. We also have access to additional funders and lenders outside of our direct network that can also assist.