 
In our last article we discussed flexible portfolio lending in the form of Index based mortgages. However, there are additional portfolio loan programs which merit mention as alternatives to the standard fixed rate mortgage. The Piggy Back mortgage allows the borrower to split the loan total into a combination of product types and amounts. In effect a borrower can obtain fixed rate mortgage financing for any portion of a loan while simultaneously using a Home Equity Line of Credit for the remainder. Let us use an example of a client I recently worked with on a purchase of a resale property valued at $2,250,000.00. In this case the client was self employed with a solid history of both income and credit. The challenge for this client was liquid assets. The majority of his assets where tied up in his business and in his present primary residence. At this time the client’s needs where to finance 80% of the total purchase price based upon his current financial situation. Furthermore, after discussing his future plans to sell his current home, it was clear that over the next 12 months or less he would be receiving substantial proceeds, thus giving him the ability to radically reduce the principle amount of the mortgage on the new home. Based upon this knowledge I recommended the Piggy Back mortgage strategy. We structured the mortgage by taking a fixed rate first amortized over a 10 year period for $1,300,000.00 at a rate of 4.75% for a monthly payment of $ 13,630.21. The balance of the loan $500,000.00 (maximum loan amount) was taken on a Home Equity Line of Credit at an interest rate of 4.0% (tagged to the prime rate) for a monthly payment of $2,000.00. The total monthly obligation of the borrower is $15,630.21 in comparison to placing the full amount in the fixed rate product at $18,872.59. The monthly savings adds to $3,242.38. More importantly there are no closing costs on the Home Equity Line of Credit. Ultimately we have saved our client in excess of $8,000.00 in closing cost by choosing to utilize the Home Equity Line as an alternative to fully financing this mortgage as a fixed rate first. When shopping for your Home Equity Line, be sure to gather information regarding prepayment penalties and the time frame involved in order to avoid unnecessary fees. Also worth mentioning is the fact that this particular portfolio lender is willing to modify the mortgage for a flat fee. With a loan amount of 1.3 million every quarter point move in the market counts. This privilege enables the client to actively participate in positive bond market movement by modifying their mortgage to a lower interest rate for a maximum cost of $950.00 as well as avoiding the inconvenience of having to go through a refinance. For questions or comments I can be reached at (516) 935-5600 extension 13. By mail at Beechwood Capital Company, LLC. 500 North Broadway Ste 240 Jericho New York 11753. Back |
