Bad credit mortgage financing BCMF logo
Home Bad Credit Property Mortgage Theory Lending Practices Mortgage Financing Alternate Financing Creative Financing Consolidate Debt Repair Bad Credit Credit Cards Mortgage Lenders Mortgage Articles Real Estate Ebooks
Home
Misconceptions
New Mortgage
Interest Rate
Wrap Around
Equity Purchase
Blanket Mortgage
Refinance High
Home Equity Loan
Private Mortgage
Bank Loan
FHA Loan
Discounted Bonds
Foreclosures
Brokers Money
Create A Note
Partners
Converting Paper
 Interest Rate

Interest Rate Creative Real Estate Financing Technique #2

A higher interest rate rather than the current mortgage interest rate may encourage the seller to accept terms that would otherwise be unacceptable. 

This technique could allow a seller to postpone a portion of capital gain that might otherwise have to be reported in an installment sale under the new tax law.

For example, a seller has a property for sale at an asking price of $100,000. The property has an existing, assumable mortgage of $50,000 payable at the rate of $450 per month. The seller wants $10,000 cash at close and will extend you a loan of $40,000 in the form of a mortgage at 10% interest.

Offer the seller $95,000 with no money down. Agree to take over the loan of $50,000 and pay 15% interest on the remaining $45,000 for a period of five years. The result is a monthly interest payment of $563 ($45,000 x 15% divided by 12 months) to the seller. You initially pay only the interest with $45,000 due in five years.

If the total monthly payments for the first and second mortgage of $1,013 per month ($450 + $563) result in a negative cash flow, restructure the second mortgage so that only a portion of the 15% interest is paid monthly. The balance would be accumulated but not compounded and would be due along with the $45,000 at the end of five years. 

Example Summary Technique #2

Lower The Price / Raise The Interest Rate

 

What You Need To Begin:

A seller who does not have to receive cash at closing and is interested in monthly income.

 

Summary Of Terms:

Asking price

$100,000

Mortgage

$  50,000

Monthly Payment

$      450

Required down payment          

$  10,000

Mortgage by seller @ 10%

$  40,000

 

Procedures:

Offer   

$  95,000

Take over loan

$  50,000

Accept mortgage by seller at higher rate of interest.


$  45,000

If cash flow is negative, restructure the interest payments.

 

 

Results:    

  • The buyer has a property for no money down. The monthly payments may be high, but restructuring the interest can help alleviate some of the burden.
  • The seller has received a good price and high monthly income.

Specific Situations to Apply Technique #2

 

The Property

Property Offered Below Market

 

The Buyer

No Cash at All

Poor Credit

 

The Seller

Must Sell Immediately

Will Finance: Wants High Interest

Interest Rate To Wrap Around Mortgage