Refinance Home Mortgage

What are 80-20 Loans? Many people do not have down payments for homes. They are stuck paying a monthly rent and unable to save efficiently for a down payment.

There are loans out there to accommodate those who are unable to pay a down payment. The 80-20 loan is a mortgage loan that requires two mortgages. One of the mortgages is for 80% of the principle and the other is for 20% of the principle. The 20% loan is also known as a piggyback loan. Its interest rate is usually a little higher than the 80% loan. You can even opt for the interest only on the 20% loan to lower the monthly payment.

The 80-20 Loan also exempts the borrower from having to pay Private Mortgage Insurance or PMI. PMI is required for any loan that is over 80% of the value of the home. The 80% mortgage and 20% mortgage, added together, is still usually cheaper than one mortgage with the PMI insurance. Another benefit is that the mortgage interest can be written off on taxes, but not PMI insurance so the borrower would also be coming out ahead there.

Mortgage companies and lenders set up these loans in many different ways. Some use the 5/1 ARM System. Because the 20% loan is viewed as an equity line of credit it should be refinanced every 3-5 years. You should shop around with lenders to find out the different methods that are used to finance the two mortgages and which works best for you.

The 80-20 loans can benefit many people. While it is usually popular with people who do not have the savings for a down payment, it can benefit those who do have the money but do not want to dip into their savings or investments. The only money that is due up front by the borrower is the closing costs.

Related Posts