This is
an excellent loan for those that are lacking the down payment required
for other types of mortgages.The 80 20 mortgage is simply two loans
for 100% of the purchase price. It is a first mortgage at 80% of the
purchase price with a 20% second mortgage.
If you are a conforming borrower, doing your loan in this manner will
save you from having to pay mortgage insurance. Mortgage insurance is
almost always required when you have less than 20% down. But with the 80
20 loan you avoid this necessary evil.
If you are a sub-prime borrower, doing you loan in this manner will
typically keep your interest rates ½% to 2.5% lower than doing a 100%
one loan. A 100% one loan is simply one loan for the entire purchase
price.
Many times you will have two choices when it comes to the second
mortgage portion of the 80 20 mortgage. The second mortgage can either
be a fixed second mortgage or it can be a line of credit.
If it is a fixed second mortgage. The interest rate is fixed for the
entire length of the mortgage. Most fixed second mortgages are a 30 due
in 15. Meaning that the second mortgage is amortized over 30 years, but
is due in 15 years. Basically it is a balloon payment. Don’t let this
scare you. Statistically people refinance or sell their home every 7 to
9 years any ways.
If it is a line of credit as the second mortgage. The interest rate
will fluctuate as the Federal Reserve adjusts the prime interest rate up
or down. The benefit of going with the line of credit as the second
mortgage is that the interest rate is normally much lower than the fixed
second mortgages rate. It can be 2% to 5% lower.
If you are considering doing the 80 20 loan have your loan officer
compare the two different options if you have both available to you.
You may also want to consider an 80 20 interest only loan. The
interest only loan could save you hundreds of dollars in mortgage
payments every month. This can help you purchase a more expensive home
or keep the payments down on the home you want to buy.
