The Sliding Mortgage - Creative Real Estate Financing

Category : The Sliding Mortgage - Creative Real Estate Financing - US 

The sliding mortgage technique is used when you want to slide a mortgage from on property to another, removing the specific debt from property you are buying or exchanging and replacing the secuirty with some other form of asset or promise. One situation would be where the buyer wants to assume an existing mortgage because of its term, interest rate but at the time wants take out new financing. If a mortgage can be moved over to another property this goal can be achieved, and often buy a properrty without using your own money. Another benefit of this technique is that the mortgage is moved to another piece of collateral. 

For example lets say Paul wants to buy an apartment building for $100,000 and the seller has agreed to the following. 

1. A down payment of 25%

2. Currently the property has an exising mortgage on it of $50,000 payable over 10 more years at 10% interest, and a second mortgage of $10,000 payable for 10 years at 5%. The second mortgage is held by the previous seller and as initially a 17 year mortgage.

Now Paul obtains a 80% percent mortgage from the bank which he uses to pay off the first mortgage of $50,000 and offers the second mortgage holder a 1st mortgage on one of his other properties for $10,000 and throws in $1000 bonus. This can benefit the second mortgage holder because he is no longer in second place any more and now has a mortgage in 1st place. So now the position is as follows.

$25,000 to pay off the seller.

$50,000 to pay off the 1st Mortgage

$1,000 to the former owner, (who know will be given a $10,000 mortgage on another property)

which totals $76,000, which is deducted from the $80,000 he receives and he is left with $4,000 tax free.Plus also gets some equity out of his second property and gets the benefit of a low interest rate.