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As of this writing, mortgage rates are low, but are expected to rise. I am not ready to commit to a house that ties me down to a location but would prefer to take advantage of the low mortgage rates. I'm financially secure and was wondering if I could take out a mortgage with a low rate, pay monthly, and just do all the normal stuff with out actually getting a house. Then, when I'm ready, I would have a mortgage ready and waiting to purchase a house.

I see how this would be attractive to a bank. They could hold the money until I was ready (which makes it really easy to "foreclose" on me if I go astray).

If this is possible, is it a good idea? I think I might be better off just saving and doing a bigger down payment but am not sure how the math would work out (it likely is a function of how fast rates rise).

Is taking out a mortgage without purchasing a house a) possible and b) a good idea?

  • Is there such a thing as the German "Bausparvertrag" (building savings contract) in your country? Essentially, you make a contract to save up a certain amount of money and to get a low-ish interest rate on that, and when you have saved it up (plus a certain amount of time must have passed after you started) then you take out the savings and the interest and you also get the option to take out a loan with an interest rate that was also agreed when you initially made the contract. Essentially, you take lower interest on your savings now in order to gain a low interest loan later. – Sumyrda Nov 20 '16 at 21:30
  • Well done on being financially secure: surely your best bet would be to simply buy a house, perhaps even just a small flat, "right now"? Why not? At worst just get something you can put a tenant in. It won't "tie you down", believe me. You needn't live in the same city you own property in. Enjoy! – Fattie Nov 22 '16 at 16:57
  • The savings contract mentioned by @Sumyrda might be the best bet. I would doubt a bank would give you a traditional mortgage without a house. Often the house is used as collateral in case you do not pay back the money that you borrowed. – airfishey May 16 '17 at 20:43
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I've never heard of a loan product like that. Yes, if they keep the funds in an account, it is no risk to the bank, but they would essentially need to go through the loan process twice for the same loan: when you pick a house, they need to reevaluate everything, along with appraising and approving the house.

Even if you did find a bank that would do this for you, there are a few problems with this scheme. You would be paying interest before you have a need for this money, negating the savings you might achieve if the interest rates go up. In addition, your "balance" will go down as "payments" are deducted from your loan, and when you finally find a home to buy, you might not have enough for the house you want. You'll need to borrow more than you need, which will further negate any possible savings.

It is impossible to know how fast rates will climb. If I were you, I would stick to saving for your down payment, and just get the best rate you can when you are ready to buy.

Another potential idea for you is to lock an interest rate. When you apply for a mortgage, the interest rate is often locked for as much as 60 days, to protect the borrower in the event that the rates go up. You could ask the bank if you can pay a fee to lock the rate even longer. I don't know if that is possible or not. And, of course, the fee would eat into your potential savings.

  • you can get a forward loan, interest rates are usually .1% per month you want to wait before getting the loan. Saving up is probably the better option – Christian Nov 20 '16 at 21:15
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As a legal contract, a mortgage is a form of secured debt.

In the case of a mortgage, the debt is secured using the property asset as collateral.

So "no", there is no such thing as a mortgage contract without a property to act as collateral.

Is it a good idea? In the current low interest rate environment, people with good income and credit can obtain a creditline from their bank at a rate comparable to current mortgage rates. However, if you wish to setup a credit line for an amount comparable to a mortgage, then you will need to secure it with some form of collateral.

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First, many banks do not keep the loan. Even if they send you a payment notice and process the monthly payment, there's still a good chance the loan itself was packed up and sold to investors. Collateralizing mortgages, in and of itself, is not inherently dangerous. But the loan definitely needs a house behind it.

If you found a bank that keeps its loans, it would be a tough sell. You'd be asking them to trust that you've chosen the right number to match up with the house you intend to buy. And then they'd need to have another round of processing to turn this into a loan with normal collateral (i.e. put a lien on the house and tie them together.)

  • Ellaborating on "First, many banks do not keep the loan." A weird loan like OP is asking for probably could not be sold. It would not be until a house was purchased and the loan turned into a real mortgage that the bank could sell. If interest rates moved against the bank between the initial contract with OP and the sale the bank would have to eat the difference. – Shannon Severance May 17 '17 at 18:24
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Not unless you have something else to put up as collateral. The bank wants a basic assurance that you're not going to immediately move the money to the Caymans and disappear. 999 times out of 1000, the collateral for a home mortgage is the home itself (which you wouldn't be able to take with you if you decided to disappear), so signing up for a 30 year mortgage on a nonexistent house is probably going to get you laughed out of the bank.

It's sometimes possible to negotiate something else as collateral; you may, for instance, have a portfolio of securities worth the loan principal, that you can put in escrow for the term of the loan (the securities will stay in your name and make you money, but if you default on the loan the bank goes to the escrow company and takes the portfolio for their own). The bank will consider the risk of value loss on the securities in the portfolio, and may ask for a higher collateral value or only allow a lower loan amount.

In all cases, it's usually a bad idea to go into long-term personal debt just to get "cheap money" that you can use to beat the interest rate with some business plan or investment. If you have a business plan, take that to the bank with an LLC and ask for a business loan. The business itself, if the plan is sound, should become valuable, and the terms of business loans take that into account, allowing for a "shrinking collateral" transferring the initial personal risk of the loan to the business.

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