Mortgage Leverage Strategies
“Here’s One Way To Get Greater Mortgage Leverage on a Commercial Property At Lower Average Interest Rates”
There is typically a trade off between lower interest rates and higher mortgage loan to value ratios, especially with short term deals.
One of the ways to get the best of both worlds is to secure a combination of institutional and private mortgage facilities for the subject property in question.
As an example, say that you have a condominium project you’re selling off unit by unit and you’re looking for the maximum amount of condo inventory financing you can secure on the available units. An institutional commercial lender may be very interested in your project at very good rates, but likely at a loan to value ratio between 50% and 65%. If the development has already sold a number of units and has a strong marketing campaign underway, a private second mortgage may be able to be arranged for up to 80% loan to value depending on the project.
While the private second mortgage is going to be more expensive in terms of rate, the principal the rate will be applied to will be small percentage of the institutional financing, allowing for the weighted average cost of capital to still be respectable while gaining the highest potential loan to value.
This strategy works for a variety of reasons. First, the private is not taking a huge position in the project, making it more likely that a private lender would be interested in the deal. Second, as each condo unit is sold, most of the sale price will go to reduce the mortgage principal on one or both mortgages, further reducing the exposure to the lenders as time goes along. Third, the institutional lender is comfortable with a second mortgage holder being in place due to the accelerated pay down of the project.
The key to making it work is working with a mortgage broker that can arrange both the institutional and bank portions and get everything approved and disbursed in the time period required.
If you want to look at different strategies to get the best potential rate and leverage on a real estate property, please give me a call so we can go through your requirements and see what types of workable mortgage options can be arranged.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel