Refinance Home Mortgage

Do you know anything about combination mortgage loans? An increasingly attractive mortgage option is what is referred to as the combination mortgage loan or combo loan. Combination mortgage loans have several key advantages over traditional 30-year mortgage loans and there are a wide variety of combinations to suit most financial situations.

By far, the most popular combination mortgage loan is the 80/20 loan. This loan is actually two loans; the first loan is for 80% of the homes value, and the second loan is for the remaining 20%. With the 80/20 mortgage loan, the buyer pays no down payment and is ideal for those without a significant amount of savings.

Another key advantage of the 80/20 mortgage loan is that the buyer avoids PMI or private mortgage insurance. PMI is required on all mortgage loans that are greater than 80% of the homes value.

A third advantage of the combination mortgage loans is that both loans are tax deductible. By avoiding PMI and increasing their tax deduction, a buyer gains a significant cost savings advantage over traditional home mortgage loans. Combination loans are available in many other ratios as well. The 70/30 mortgage loan is usually preferred over the 80/20 loan for more expensive homes, when 80% of the homes value would be classified as a jumbo loan (above the FNMA/FHLMC limit) and subject to higher interest rates. Another option is the 80/15/5 mortgage loan, where the buyers makes a down payment of 5%. Still other options include the 80/10/10, 75/15/10, etc which are all variants of the same.

In combinations mortgage loans, the primary loan usually has a 30-year amortization term, while the second loan can have 30 or 15 year term. Expect the interest rate to be about 2% higher for the second loan. The buyer can opt for a fixed rate mortgage or an ARM (adjustable rate mortgage) on either or both loans. The ARM will have a lower monthly premium and allow for additional cost savings, but be sure to refinance the ARM loans if interest rates start to rise.

Balloon Mortgages are mortgages that usually require a lump sum payment at the end of the loan period because the loan is not fully amortized throughout the term of the loan.

The ballon mortgages payments are based on a 30 year amortized loan but the remaining balance also known as the balloon payment of the 30 year mortgage will come due in five to seven years, depending on the loan agreement. Often the lump sum is about 85% of the borrowed amount. The majority of the payments made through out the loans life are applied toward the interest. Balloon Mortgages are more popular with Commercial real estate than that of personal or residential real estate.

Borrowers who are unable to pay the balloon payment at the time its due, may be eligible for the conversion option or reset option which fully amortizes the remaining balance at current market rates, usually for another 23 years. They may also opt for a conventional second mortgage, which typically amortizes the loan for an additional 15 years. If not, the borrower may apply for another loan to cover the balance due or sell the property or in worse case scenario lose the home through lender foreclosure.

Some conditions of the conversion option or reset option are the following:

1. the borrower still owns the property
2. has no delinquent payments in the previous year (12 months)
3. has no other liens against the financed property.

If you do not plan or are unable to pay the balloon mortgages amount at the end of the term of the loan, you should begin to apply and plan for refinancing your home mortgage as soon as possible to assure that you will be able to refinance the loan before the due date of the balloon payment. This also helps to cushion for the fluctuations of interest rates and uncertainties. Balloon mortgages payments benefit the lender because they give the lender extra security against risky interest rates but can be risky within themselves if the lender is unable to pay the lump sum at the end of the term of the loan.

Do you need a second home mortgage? The purchase of vacation and second homes is increasing in as many baby boomers headed into the years of retirement. It has even increased among non-retiring families. Vacation homes are a perk that many people want to enjoy during the few weeks they get off a year to spend time with their families.

There are a few smart tips to keep in mind when initiating the loan process to take out a mortgage for a vacation home or a secondary home. A secondary home is a home that is not the primary residence of the buyer. Although it is traditionally thought that the interest rate on vacation and secondary homes are higher than that of primary homes, it is being proven that the gap is lessening over time and in many situations the interest rate is nearly the same.

The higher interest rates originated from two situations. The first being that lenders were taking an opportunity to make a higher profit off of “luxurious” home mortgages such as those of vacation and secondary homes. The second, which is still somewhat of an interest rate driver, is that lenders saw mortgages for additional homes as a greater risk. One thing to consider when financing a vacation home or secondary home is to refinance your primary home mortgage and take out cash to help assist the purchase of the second home. Many people hesitate to do this and try to take out second mortgages or equity mortgages of their primary home for a down payment toward the second home.

Second mortgages or lines of credit usually have higher and or fluctuating interest rates so it could cost you more in the end than refinancing your primary home mortgage. Financing a vacation home is becoming more popular with Americans and Brits these days. Being aware of all of your financing options can make it more affordable.