Just Information
05-20-2006, 03:54 PM
A hard-equity loan is flexible and quick. Because most hard-equity lenders are private individuals and not large multistate lenders, they have more flexibility. They can also close more quickly, usually in as few as one to three days. Moreover, most take a quick look at the real property.
The key is the title search.
There are many creative hard-equity programs and techniques such as:
Low starting interest rate = Hard-equity loans have higher interest rates than conforming loans. A hard-equity loan, however, can have a lower starting interest rate for a certain period, from three months to five years. With a reduced payment for a time period, so you can catch up with other bills.
Long-term loans = Most hard-equity loans are made for five years. The monthly amortization period may be for 15 years or 30 years, or it may be interest-only. Hard-equity loans can also be for longer terms, such as 15, 20, 30 or 40 years with no balloon payments.
No payments for a time period = Sometimes you need a break from making monthly mortgage payments. This program may allow you not to have any payments for a number of days at the beginning of the mortgage. This can range from 60 days to the first year. Alternatively, you can have a provision that defers one or more monthly payments to the end of the mortgage. This allows you to use the money for other debts.
Tailored payments = Most mortgages allow for equal monthly payments for the entire mortgage. At maturity, the mortgage balance is zero or a balloon payment is required. Hard-equity mortgage payments can be tailored to satisfy your needs rather than the lender's matrix. If you have seasonal employment, then the payments can be larger during the "feast" period and smaller during the "famine" period.
Loans with a lump-sum payment = You may benefit from having one lump-sum payment at the end of the mortgage. Use this program if you are likely to receive a large sum of money in the future. On these loans, the interest accrues, and the accrued interest and the principal are due at maturity.
Second and third mortgages = Hard-equity loans can be a first, second or third mortgage. As long as the loan to value (LTV) and the superior mortgage to subordinate mortgage ratio (SSR) is adequate, the loan is possible. The maximum LTV for hard-equity loans is 65 percent for first mortgages; 50 percent to 65 percent for second mortgages; and 50 percent to 60 percent for third mortgages. The SSR is calculated as follows: If the superior mortgage is $80,000 and the subject subordinate mortgage is $20,000, then the SSR is 4:1 ($80,000 divided by $20,000). Hard-equity lenders' required SSRs are usually between 1:1 and 7:1. If the LTV is low enough, a hard-equity lender will not be too concerned with the SSR in making a second mortgage. If the LTV and SSR are low enough, a hard-equity lender may be willing to make a third mortgage. Third mortgages are rare, however.
Wrap mortgages = Some hard-equity lenders reduce the LTV of a second mortgage to 60 percent but allow 65-percent LTV on a first mortgage. You may only need a small amount on a second mortgage compared to the first mortgage, and a hard-equity lender may not want to fund a small second-mortgage, high-SSR transaction. Convert a small second mortgage into a larger wrap-second mortgage. The second mortgage will encompass the first-mortgage balance, the amount you need and the closing costs. The interest rate should be less than the new, small second hard-equity loan. It also should blend a second hard-equity loan interest rate and an interest rate a few points more than the first-mortgage interest rate. The mortgage can sometimes be tailored so the wrap-second mortgage is paid off before the underlying first mortgage, at which time you pay the first mortgage directly. The benefit of a wrap mortgage is that underlying first mortgage is available when the wrap mortgage is satisfied. The advantage to lenders is that they are assured that the first mortgage will be paid. The interest yield on the transaction also can be enhanced.
Cross-collateralized loans = In many cases, the subject property does not have enough equity to support the proposed hard-equity loan. But you may have other real property to pledge as additional collateral. With the additional property, a hard-equity lender will close the loan because the collateral is adequate. Sometimes, assets other than real estate are acceptable.
Lines of credit = A hard-equity line of credit can be established more easily than a line of credit at a bank. The hard-equity line of credit can be used and repaid based on needs. It provides money that you can borrow and repay repeatedly under the terms of the mortgage. The interest on the mortgage would be payable monthly. The borrowing and repayments could continue until the mortgage matures.
Future advances = Often, a loan closes and you need more money soon after. Some costs can be eliminated if the first closing takes into account the possible need for additional money. The mortgage can provide for a future advance from the lender for an additional amount that is agreed to at closing.
Portable loans = When you sell a home, most generally buy a new home. Both homes probably have a mortgage. If the mortgage could be transferred from the old property to the new property, you can save time and money. A hard-equity lender may let you transfer the mortgage from the old property to the new property.
Combination mortgages = Hard-equity loans can be as creative as you can make them. A hard-equity loan may contain elements of two or more of the above techniques.
John Michael
The key is the title search.
There are many creative hard-equity programs and techniques such as:
Low starting interest rate = Hard-equity loans have higher interest rates than conforming loans. A hard-equity loan, however, can have a lower starting interest rate for a certain period, from three months to five years. With a reduced payment for a time period, so you can catch up with other bills.
Long-term loans = Most hard-equity loans are made for five years. The monthly amortization period may be for 15 years or 30 years, or it may be interest-only. Hard-equity loans can also be for longer terms, such as 15, 20, 30 or 40 years with no balloon payments.
No payments for a time period = Sometimes you need a break from making monthly mortgage payments. This program may allow you not to have any payments for a number of days at the beginning of the mortgage. This can range from 60 days to the first year. Alternatively, you can have a provision that defers one or more monthly payments to the end of the mortgage. This allows you to use the money for other debts.
Tailored payments = Most mortgages allow for equal monthly payments for the entire mortgage. At maturity, the mortgage balance is zero or a balloon payment is required. Hard-equity mortgage payments can be tailored to satisfy your needs rather than the lender's matrix. If you have seasonal employment, then the payments can be larger during the "feast" period and smaller during the "famine" period.
Loans with a lump-sum payment = You may benefit from having one lump-sum payment at the end of the mortgage. Use this program if you are likely to receive a large sum of money in the future. On these loans, the interest accrues, and the accrued interest and the principal are due at maturity.
Second and third mortgages = Hard-equity loans can be a first, second or third mortgage. As long as the loan to value (LTV) and the superior mortgage to subordinate mortgage ratio (SSR) is adequate, the loan is possible. The maximum LTV for hard-equity loans is 65 percent for first mortgages; 50 percent to 65 percent for second mortgages; and 50 percent to 60 percent for third mortgages. The SSR is calculated as follows: If the superior mortgage is $80,000 and the subject subordinate mortgage is $20,000, then the SSR is 4:1 ($80,000 divided by $20,000). Hard-equity lenders' required SSRs are usually between 1:1 and 7:1. If the LTV is low enough, a hard-equity lender will not be too concerned with the SSR in making a second mortgage. If the LTV and SSR are low enough, a hard-equity lender may be willing to make a third mortgage. Third mortgages are rare, however.
Wrap mortgages = Some hard-equity lenders reduce the LTV of a second mortgage to 60 percent but allow 65-percent LTV on a first mortgage. You may only need a small amount on a second mortgage compared to the first mortgage, and a hard-equity lender may not want to fund a small second-mortgage, high-SSR transaction. Convert a small second mortgage into a larger wrap-second mortgage. The second mortgage will encompass the first-mortgage balance, the amount you need and the closing costs. The interest rate should be less than the new, small second hard-equity loan. It also should blend a second hard-equity loan interest rate and an interest rate a few points more than the first-mortgage interest rate. The mortgage can sometimes be tailored so the wrap-second mortgage is paid off before the underlying first mortgage, at which time you pay the first mortgage directly. The benefit of a wrap mortgage is that underlying first mortgage is available when the wrap mortgage is satisfied. The advantage to lenders is that they are assured that the first mortgage will be paid. The interest yield on the transaction also can be enhanced.
Cross-collateralized loans = In many cases, the subject property does not have enough equity to support the proposed hard-equity loan. But you may have other real property to pledge as additional collateral. With the additional property, a hard-equity lender will close the loan because the collateral is adequate. Sometimes, assets other than real estate are acceptable.
Lines of credit = A hard-equity line of credit can be established more easily than a line of credit at a bank. The hard-equity line of credit can be used and repaid based on needs. It provides money that you can borrow and repay repeatedly under the terms of the mortgage. The interest on the mortgage would be payable monthly. The borrowing and repayments could continue until the mortgage matures.
Future advances = Often, a loan closes and you need more money soon after. Some costs can be eliminated if the first closing takes into account the possible need for additional money. The mortgage can provide for a future advance from the lender for an additional amount that is agreed to at closing.
Portable loans = When you sell a home, most generally buy a new home. Both homes probably have a mortgage. If the mortgage could be transferred from the old property to the new property, you can save time and money. A hard-equity lender may let you transfer the mortgage from the old property to the new property.
Combination mortgages = Hard-equity loans can be as creative as you can make them. A hard-equity loan may contain elements of two or more of the above techniques.
John Michael