 
It’s called a “piggy back” loan and it works for a variety of reasons You are on a roll! You have an appraisal establishing value for your five acre waterfront estate and a good faith estimate giving a relatively accurate transaction cost. Contracts have been executed and you are ready to explore mortgage options. The goal is to close before summer to allow time for necessary renovations, and decorating. You want to enjoy your new home throughout the summer. However, you also realize that selling your current residence may involve a lengthy process which may not be finalized prior to closing on this home. You note that under current stock market conditions, liquidating any positions to cover expenses would not be prudent. You desire a financing option which will provide needed liquid assets with the least delay, expense and risk. As you know approximately what the proceeds will be from the sale of your current residence after satisfying the existing mortgage and expenses, a suitable choice would be to simultaneously obtain two mortgages, better known in the industry as Piggy-Backing. For example if the purchase price is $1,000,000.00, your total loan amount based on 10% down would be $900,000. Expecting $400,000.00 in net proceeds from the sale of your primary residence, you would take a first mortgage for $500,000.00 and a second for $400,000.00. The second mortgage would be in the form of a Home Equity Line of Credit. These loan types vary from lender to lender. You want to choose a program which has no closing cost, is tied to the prime lending rate, (currently the prime is only 4.75%) for the life of the loan, and includes no prepayment penalty. Such programs allow you to apply for up to 90% of the value of your residence with a maximum loan amount of $500,000.00. For the first ten of the thirty year loan life you will be paying interest only on what you have actually borrowed which helps to keep your monthly payments low. Once you receive the proceeds from the sale of your current home, you can pay off the Home Equity Line, partially or in full. Furthermore, as a feature of this loan you have the ability to draw against your line for up to ten years. Also, you can keep it in reserve to tap for future projects providing the prime lending rate is at a low level. This
mortgage strategy bridges the gap between your sale and new purchase,
thus allowing for a quick move you into your dream home. Furthermore,
having no closing costs on this portion of your mortgage significantly
reduces your total transaction cost, which is quite satisfying. |
