80-20 Mortgage Loans

80-20 mortgages are generally given when a person does not have the down payment required for other types of mortgages. Basically an 80-20 mortgage is two loans that total the entire purchase price. The first mortgage is 80% of the purchase price and the second mortgage is 20% of the purchase price.
Mortgage insurance is almost always required when you have less than 20% down. Borrowing in this manner will save you from having to pay mortgage insurance if you are a conforming borrower.
If you are a sub-prime borrower, borrowing your loan in this manner will typically keep your interest rates 0.5% to 2.5% lower than doing one 100% loan.
The second mortgage in the 80-20 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 amortized over 30 years, but are 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 anyways.
If your second mortgage it is a line of credit, 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 mortgage’s 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. 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 low on the home you want to buy.

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