What If I Don't Have Enough Equity?
Limited equity can make a Power of Sale file much harder to refinance. Alternative and private lenders still need enough value in the property to support the new mortgage, so when the numbers are too tight, another strategy may be required.
← Back to the Power of Sale SeriesRefinancing Depends on the Numbers Working.
A lender looks at the total amount that must be financed compared with the property's current appraised value. If that loan-to-value is too high, even flexible lenders may not be able to approve the mortgage.
Start With a Realistic Property Value
The property value needs to be supportable by a current appraisal. A realtor estimate may be useful context, but financing is based on an appraisal the lender can rely on.
Add Up Everything That Must Be Paid
Include first and second mortgages, secured lines of credit, arrears, property taxes, legal fees and other amounts that have to be dealt with.
Enforcement Costs Keep Growing
As the Power of Sale process continues, interest and legal costs can increase. That can reduce the equity available even further.
Private Financing Is Not Unlimited
Private lenders can be more flexible than banks, but they still have maximum loan-to-value limits. Equity does not stop mattering just because the lender is private.
Additional Collateral or Cash May Help
In some situations, bringing funds to the table or using another property as collateral can reduce the effective loan-to-value enough to create an option.
Selling May Become the Realistic Option
If there is not enough equity to refinance and no additional collateral or funds are available, selling the property voluntarily may be the best way to protect whatever equity remains.
The Numbers Have to Be Realistic.
The first step is to establish the current property value and the total amount required to resolve the Power of Sale. From there, we can calculate the actual loan-to-value and see whether a lender exists for the file.
If the financing simply does not fit within available lender limits, forcing a refinance attempt can waste time and money while enforcement costs continue to rise.
Use a current appraised value to determine the equity position.
Get current payouts for mortgages, taxes, arrears and legal costs.
Compare the total financing required with the appraised property value.
If financing is too tight, consider cash, additional collateral or a controlled sale before the lender controls the outcome.
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