In my last column I explained an interest only mortgage and how it could possibly help you in selling your property. An interest only mortgage is similar to an amortized mortgage with only a couple of differences.
Utilizing the same scenario as last week's example, you are selling your property for $1,000,000; the buyer has 10 percent in cash and a bank approval for 80 percent. The buyer is still lacking an additional 10 percent or $100,000. As a seller, you can offer the buyer a $100,000 second mortgage that is amortized over a certain time period. The amortization period could be fifteen, twenty or thirty years. This means the $100,000 is paid based on a fifteen, twenty or thirty year loan. This doesn't mean you're holding the mortgage for that period of time. It simply means that the monthly payments are based on that particular term. This type of mortgage usually contains a balloon payment provision. This means the total mortgage is due and payable in a much shorter time frame, say 2, 3 or 5 years.
Remember we discussed the risk of second mortgages. If you do a second mortgage after you do your homework, there is NO risk.
If you want to avoid risk, do what I do. Sell the mortgage at a discount to a third party. Before I take back a second mortgage, I call several mortgage investors that buy paper (second mortgages) and inquire as to the interest rate and term they would accept on a particular sale. The information they give me determines the rate and terms I offer my buyer. It usually works out for everyone - I sell homes that I want to dispose of, the buyer has the 100 percent mortgage he needs and the mortgage investor gets a great return on his investment.
It is called creativity!
Ric Cornelius is the Broker/Manager of Sand Key Realty Sales and Rentals, Inc. Sand Key Realty has three offices with 40 agents. One office is at 740 S. Gulfview Blvd., Clearwater Beach, 727-443-0032; the second office is at 2701 Gulf Blvd., Indian Rocks Beach, 727-595-5441; and the third office is at 309 Belleview Blvd., Belleair, 727-461-4200.