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The Zero Down 80/20 Mortgage
by: Matthew Allen
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
About The Author
Matthew Allen is a mortgage consutlant with Action Brokerage
Services, Inc. in Medford Oregon. He is also the author of "How To
Buy A Home With Zero Down, Even If You Have Damaged Or No Credit"
You can visit his website at http://www.realmortgageadvice.com.
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