Lets assume our borrower has run into some financial troubles, and has had to use personal loans and credit cards to get themselves through during a job loss. They have found a new job, but their credit suffered and they no longer qualify at a bank. They have a first mortgage at a bank for $150,000 with a payment of $780 that is coming up for renewal in a month, a car loan for $40,000 with a payment of $790 per month, and 4 credit cards with a combined balance of $20,000 with a minimum monthly repayment of $600. They also want to borrow $2000 to renovate their bathroom. Their home is valued at $300,000. The lender and broker fees are 3% of the total amount borrowed, legal fees are $1400.
Current Monthly Liabilities - $2170
New 1st Private Mortgage - $195,000 - 4.88% - interest only - $785 per month
New 2nd Private Mortgage - $25,000 - 12% - principal and interest - $257 per month
Our client is saving $1128 every month for 1 year. A total of $13,536
With all this extra free cash flow, the clients were able to obtain 2 secured credit cards for $1500 each, and managed their credit well during the year. At the end of the year, showing clean repayment history on their credit cards, and mortgages, they were able to return back to a bank for regular lending rates.
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Credit Repair Scenarios How 2nd Mortgages Work