Make your dream home a reality with an equity 'bridge'

You love where you live. But you've always had an idea of what your perfect dream home would be.

So, what if you were on a leisurely Sunday drive next weekend and unexpectedly found that your dream home just went on the market? Would you be ready to snatch it up?

In today’s fast-paced, competitive real estate market, chances are good that the home of your dreams is the perfect property for other eager buyers too. That means you have to act fast. Your offer has to be aggressive. And you have to agree to close quickly, using a hefty down payment as your leverage. You can’t afford to lose out by having any contingencies like mortgage approval or the sale of your current home. (Plus you haven’t even thought about what it would take to get the home you’re in now on the market.)

Here's the good news: If you have equity in your current home, you may be able to apply that equity to a new home with an interest-only second mortgage “bridge” loan that you use as a down payment on your dream home purchase. Having the interest-only feature for the bridge loan as well as for your new home purchase mortgage significantly eases the cash flow burden of carrying multiple mortgages. Then, after you sell your former home, you can use the proceeds to pay-off the bridge loan and pay down the balance of your new purchase mortgage, if you care to, reducing your ongoing monthly payments even further.

Another application: Staying invested while investing in a vacation home

A loan based on the equity in your investments is another “bridge” solution that works well for a vacation property.

Let’s say you found the perfect vacation home in the perfect location, but the timing isn’t perfect. You’d rather not liquidate a portion of your investment portfolio right now to make the down payment because that could result in significant taxable gains.

The solution here may be a “cross-collateralized” mortgage that leverages your investment account without selling securities. By pledging an appropriate amount of marketable securities held at SVB Private, you may be able to access the down payment you need on your new vacation home without selling investments that have potential taxable gains.

What about the impact of rising interest rates?

Since the election in November, the Fed has raised short-term interest rates by 0.25%. Longer term rates, including mortgages, have risen about 0.50%. Fortunately, any concern about the impact of these higher rates on new home purchases may be tempered – at least for the time being -- by ongoing gains in equity markets coupled with lower unemployment and higher consumer confidence. For clients making a home buying decision, this asset appreciation and confidence may help offset any increased financing cost.

But if the Fed pushes short-term rates progressively higher throughout 2017, and longer term rates remain in the narrow range of today’s levels, we expect fewer current mortgage-holders will be able to refinance for lower rates. At the same time, borrowing to meet other needs at today’s still near-historic low rates will continue.

For more ideas to help you move into your dream home by tapping the equity you’ve built in your real estate or investment portfolios, contact your SVB Private advisor.

The views expressed in the article are those of the author and/or person interviewed and do not necessarily reflect the views of Silicon Valley Bank, a division of First-Citizens Bank and First Citizens BancShares, Inc. The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein.