Today, we're going to look at a situation that's become quite common lately among investors and business owners. You've bought a property with your own funds—that is, with cash—and now you need that money back. Maybe another investment opportunity has come up, or you simply need to put the money back into your company. You have the property, but you don't have the liquidity.
The question is: Can you go to a bank and say, "Here's my house, give me my money back in the form of a mortgage?"
Yes, you can, and it's called reimbursing your own funds.
But it's important not to confuse this with a home equity loan. That's a completely different product. While a home equity loan is a non-purpose loan with a significantly higher interest rate, reimbursing your own funds is a standard purpose-based mortgage with the lowest rates on the market. However, for the bank to recognize it as a purpose-based mortgage, you have to meet three key criteria.
1. Time is working against you
The first and most important criterion is time. A bank won't reimburse you for a property you bought, say, 10 years ago. The standard limit is 12 months from the purchase date. If you show up in the 13th month, with most banks, you're out of luck, and you'll have to resort to something like that expensive home equity loan.
However—and this is important—there are banks that can go back as far as 24 or even 36 months. So, if you've bought a property in the last few years, there's still a chance to get that money out cheaply. Choosing the right bank is absolutely crucial at this stage.
2. How much money will the bank actually give you back?
The second point is the loan amount versus the property's value. This is where a common misconception arises. Imagine you got a great deal, maybe at an auction or before a renovation, and bought a property for 5 million. Today, that property is worth 8 million.
Logic would suggest that the bank could lend you up to 80% of the current value, but the methodology for this kind of reimbursement is strict. The bank will only give you back, at most, what you can prove you actually paid according to the purchase agreement and the flow of funds—meaning, only that 5 million. They won't pay out the increase in value under this scheme. If you wanted to tap into that as well, you'd have to go a different route, for example, by combining a purpose-based and a non-purpose part in your loan.
3. Proof of the flow of funds
The third criterion is proving where the money came from. The purchase agreement alone isn't enough. The bank will want to see a bank statement showing that the money actually went from you to the seller.
And here's a common mistake to watch out for. If you borrowed the money for the purchase from, say, a friend or your company under a loan agreement and now you want to get it reimbursed, that's unfortunately not possible. From the bank's perspective, that's refinancing a debt, not reimbursing your own funds. You must therefore meticulously prove that the funds were yours and, if necessary, justify their origin.
Why go through all this? Simply because of the cost of money
You might be wondering why you should even bother. The answer is simple: the cost of money. A business loan today costs 8 to 9%, if you're lucky. A reimbursement via a mortgage hovers around 4.5% because it's just a regular mortgage like any other. On a loan of several million, that's a huge potential saving.
So, if you've bought a property with cash in the last three years and could use that money now for further growth, get in touch. Ideally, send me the purchase agreement and the date of transfer. We'll see which bank can go back far enough to get your money back on the terms of a cheap mortgage.
