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Mortgage Refinancing

mortgage refinancing

Investors who are interested to invest in viable business may also seek for new loan to refinance existing business. Most businesses are purchased from owners who could not run the business; something due to the demise of the owner and the family or the legal adviser having the legal rights representing the deceased could do that. There are several businesses already online looking for buyers. This include all the company’s assets and the liabilities.

So there is the need to get additional financial support to turn the business around which is about to fold up. Some Lenders could provide only 30 percent, other 40 percent and the rest could be funded by subscriptions from public shares. The Lenders would look into the financial report of the company, which include the Profit and Lost Statement and Balance Sheet of the past three years and would as well consider the debt-servicing factor in terms of profitability base on the cash flow projection statement and other factors.

The liquid and fixed assets should be taking into consideration some of which would be used as collateral for new loans. The investors should be very sure that the business will be viable base on the financial records and projection statements which they would use as a base to convince the Lender. Part of the loan could go a long way to cover old debts as consolidation loan.

The Investors and the Lender would like to know the managerial capabilities of the key staff. It is possible that some staff may loose their job in case the company is overstaffed in order to increase the cash flow and in order to reduce much expenditure on wages. Sometimes an external management staff could be employed in order to take over the management having sound record of past administrational engagement in several firms.

In order to gain additional financial support for existing business, investors would like to be assured that the business is very safe for investment especially in international projects involving several foreign firms and financiers. A detailed feasibility study would be prepared to cover every aspect of the investment including competitors and the debt servicing factors as well.

The very process is applicable in mortgage re-financing which has become one of the most popular kind of investment in the financial markets. The most popular asset used as collateral to generate a mortgage investment is real estate and other buildings. Ownership of these assets could be transferred from one owner to the another; if properly manage, becomes a life time investment.

Since the mortgage is the equity value of the building used as collateral for loan security, it is also possible to gain additional loan base on the equity amount involved. Sometime the owner of the building would use it to gain refinancing through lease option – that is by leasing out part of the building either for residential or office use and then using the lease payment as collateral to get another loan from a lender to finance any business such as to develop another building, renovation of a building and could use it to buy a land and whatever purpose he wants to use it.

Lender may be collecting the lease payment either from him directly or from his tenants under notification (by informing him when he collects from the tenants) and none notification(the lender may not inform him but lease payments are paid to the lender by the tenant)depending on what option they agreed on.

Lenders who issue out loans base on lease payments and other income sources from borrowers are known as “Account Receivable Lenders”. Credit cards financiers are part of such lenders. They want to be sure of your source of income before issuing out the loan or credit cards.

Base on the equity value of the property, there is the possibility of having refinancing support from the same building from the very lender. Under this plan, the first loan earlier approved is known as ‘First Mortgage Loan” the second is the “Second Mortgage Loan”. Depending on the relationship between the Lender and the Borrower, the interest rates of each stage of the loan very and base on the prevailing financial market rates.

Despite the sufficient equity value of the property available for re-financing, the lender would also know of the detailed information of the project which the borrower proposed in order to asses its feasibility and legal implications before he would agree to give out the loan for the new project. The Contractor giving the building contract should be examined in order to ensure that they are experts in the civil engineering field who could be the very contractor who handled the former building under mortgage; but if any other Contractor would be used, he should be examined and approved base on his credibility and professional expertise.

The reason is the in case the building used as collateral collapses, the whole story change. The insurance company may not agree to pay for the least damage despite the premium paid. Consequently, the Borrower, the Lender and the Insurance company may appear in Judiciary Court to deliberate on the matter if the Borrower could not provide sufficient collateral for the loan.

Therefore, it is very necessary that the Lender examine the building properly by experts before approving the equity loan and at the same time the owner of the building should as well employ one of the best Civil Engineering Contractors he could find to handle his project since investing in real estate and other buildings is a life time investment.
Published: 2006-04-13
Author: Goodnews Adolphus

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