Business Loan question – for a residentially secured loan, do I have to move my home loan over to new lender?
Saturday, June 26th, 2010 at
9:09 pm
I’m looking to take out a business loan against some property equity I have. I was told by a lender that I had to re-finance my home loan and go with them if I was to take out a business loan with them.
Am I able to keep my home loan where it is? I don’t want to move it across because of the exit fees, legals, etc.
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Tagged with: Exit Fees • Finance Loan • Loan Lender • Loan Question
Filed under: secured loan
If the new lender requires that as a condition of making a loan, then, yes, you have to refinance your home loan.
And, really, in any case, the answer is yes. Look at it this way. You have a home loan with “Lender A.” The security for that loan is your home.
Now you want to borrow money from “Lender B.” Lender B wants some sort of security for its loan. And Lender B is saying that, for whatever reason, it doesn’t see enough security in your business itself. It wants more security. It wants your home, so that if you default on your new business loan, Lender B can seize and sell something.
Right now, if you run in financial problems, Lender B couldn’t go after anything.
Now, if there’s enough equity in your home, Lender B could take a second position–provide you a second mortgage–on your home. For example, let’s say your home is worth $500,000. If your first mortgage were only $200,000, there’s enough equity for Lender B to place a lien of, let’s say, $150,000, as a second mortgage on your home. (Or otherwise secure your business loan with a $150,000 pledge.)
But lots of people don’t have that amount of equity. So, let’s say that while your home is worth $500,000, you have a $400,000 mortgage on it. That’s a lot less equity, and little or nothing would be left if Lender B foreclosed due to a default on your business loan.
Your options are to seek less money for a business loan or to look for another lender (maybe Lender A) for the business loan.
Hope that helps.