Swaps Make a Comeback

	Swaps Make a Comeback
	Mar 02, 2009 Swaps Make a Comeback By: Becky Potter, CCIM Equity swapping - using properties as equity in exchange for a down payment - is giving borrowers leverage that they haven't needed in recent years when money was easy to obtain. To illustrate the concept, if an owner has equity in smaller units and wants to move into larger projects, he can put a note and deed of trust into escrow as the down payment, effectively making an equity swap. Swaps are easier to make on mortgage-fee properties; however, in some cases, the recipient of the signed-over equity can assume an existing mortgage, thereby saving closing costs and creating better use of his investment dollars than if he had purchased the property conventionally. Also, the equity's recipient is taxed upon accepting the equity as a down payment, the same as cash. Rate swaps also are becoming popular in the current market conditions. Interest rate swaps often exchange a fixed payment for a floating payment this is linked to an interest rate. Investors typically use rate swaps to limit exposure to interest rate fluctuations or to obtain a marginally lower interest rate. This financing technique increases cash flow and thereby property value. Rate swaps also lower LTV ratios and provides borrowers with more leverage capacity.