Package Mortgage

A package mortgage is a loan for home buyers that is not just made up of funds to purchase a house, but also consist of money to buy household items like furniture as well.

However in such cases, personal property bought with funds from the package mortgage would also be pledged as collateral for the loan.

The special feature of these types of home loans can be especially attractive for home buyers who don’t have a lot of savings but has strong cash flow.

So instead of having to fork out $10,000 from their own pockets to buy electrical appliances and furniture for the house, a borrower might only need to make a recurring payment of an extra $50 on top of the scheduled mortgage payment for the term of the mortgage.

This can be much more affordable for a borrower depending on his or her personal financial situation.

Some of the items that a lender might allow can include:

  • Television sets
  • Refrigerators
  • Dishwashers
  • Air-conditioners
  • etc

The drawback of this is that because the extra payment is a result of a higher principal borrowed, a small amount can accumulate to a very high interest cost over the life of the loan.

But they can seem like a very good deal when mortgage rates are compared with interest rates on credit card debt.

How much a borrower would be able to loan will of course have to be put through the standard underwriting protocols of a lender.

This means that things like debt ratios and loan-to-value equations will still apply.

For example, after working out the numbers, a borrower’s personal income might allow his a monthly payment of $800. But the required loan payments are only $700 because he is buying a very affordable house. Then the additional $100 can be packaged into the home loan as a packaged mortgage.

Another way in which this is done is that the price of personal property is included in the transaction price. The loan amount approved will then be based on the loan to value of the transaction price, which is appraised to be the property value.

In any case, borrowers are advised to be prudent and avoid taking on too much leverage even when lender deem that they are able to afford it.