When you finish paying the mortgage, your future appears clearer, calmer. You have spent a good part of your savings on the acquisition of one of your dreams, your home, but is there nothing else you can do with it? That is, you have invested a large part of your income in your home (not counting the interest that the bank has kept) but is there no way to make your house more “profitable” beyond selling it and obtaining its appraised value? The answer is yes, but using the head. In many cases it is possible to re-mortgage an already mortgaged house, but under very specific conditions and, beware, it is not always a good idea.
The profile of a person who needs to mortgage their home is almost always the same:
A person with a stable job, who meets most of the requirements to access a mortgage, but who needs a guarantee so that the bank finally decides to grant him a loan, generally for the start-up of your new business. That’s where your newly paid home can help you get that financing. It is a great source of liquidity.
When you apply for a mortgage with your home as a guarantee, we have to be very clear and be aware of what the limits are and what type of investments we are going to make. It does not seem very logical to put our home at risk to acquire a vehicle or a vacation, or for a new house that is beyond our possibilities. In addition, this type of investment can carry extraordinary costs that may not make sense.
All this taking into account that you can request a bank with a guarantee or re-mortgage your home. What to do in case you leave your bank empty-handed? A second option could be to go to a private lender. But for them, it only matters that the home is owned.
Private lenders have two advantages over a bank. Obtain immediate liquidity without showing income or reuniting all outstanding debts. Above all we are interested in the first one. It is like applying for a loan to the bank, without going through any solvency filter. But this carries a great risk.
These lenders are usually financial intermediaries, brokers or private equity companies and their conditions can be much more burdensome than the conditions of a financial entity, so the interest they charge is much higher than that offered by any other entity, close to 20 % or higher. Hence, the bureaucracy they require is less to apply for a loan. They even often have opening or management fees that many financial institutions have eliminated.
In addition, in case of non-payment of the loan, the reaction is much faster, including you in lists of defaulters such as Financial Credit Institutions and the initiation of the procedures for seizure of our home. The same house that cost us so much headaches and money.
Is it a good idea to mortgage your home to get a loan?
The mere fact of using an asset such as housing as a reference, facilitates access to financing or allows the debtor to access financing under much more attractive conditions.
Thus, if we lack liquidity and you have a home owned, a good option may be to mortgage it, always being aware of what our limits are and of the use that you are going to give to the loan that you have obtained thanks to your home. Keep in mind that you are playing with your home and that, in case of default, they can foreclose and stay on the street. And of course, the option of private lenders is not the most advisable.