matt2402 Posted July 8, 2003 Report Share Posted July 8, 2003 Hi Charles,Just wondering what your thoughts are on using an 80/20 loan strategy to help avoid PMI. I'm not sure if its an option for us because my mid fico scors are in the mid 600's, but my wife has excellent credit. Just curious to learn more about this strategy.Thanks! Link to comment Share on other sites More sharing options...
firstsource Posted August 5, 2003 Report Share Posted August 5, 2003 I am a great believer in the 80/20 loans. Several reasons:1) the Blended rate is most times lower than a full 100% loan.2) there is a great incentive to pay off the 20% faster, as the interest rates are from 11-14% usually. That even more lowers your "real" or blended rate. HOWEVER:If you are in an area that has rapidly increasing values, and you are able to borrow just 95% of the home, and there is a Mortgage Insurance fee added, then the decision is complicated a little, in that you have to assume that in 2-3 years you will be able to "get rid of" the MI. That will also lower your costs. The major drawback to getting a loan with MI added on is that the MI is not a deductable cost, as it is not interest.Charles Link to comment Share on other sites More sharing options...
lazy8 Posted August 9, 2003 Report Share Posted August 9, 2003 I am confused on wether to go with an 80/20 loan that is 6% and 11.5% or go with a 100% at 7%.My thinking is that with the 80/20 if I can somehow payoff or lower the payments for the 20% at 11.5 then the payments will be much lower. Are there more pro's and con's to these two loans than meets the eye? Link to comment Share on other sites More sharing options...
firstsource Posted August 9, 2003 Report Share Posted August 9, 2003 Your blended rate is figured by 8x6% + 2x11.5% /10=7.1%. That is your "actual" rate. Yes, you make enough payments to where you owe 95% LTV then 8x6%+1.5X11.5%=6.87. The other thing to watch on the 100% loan is there may be additional Mortgage Insurance (MI). This will disappear when the loan on the home is at 80% of the value, so it stays until you have paid it down 20% or the home has increased in value by 20%, or a combination. If there is MI, you can not deduct that fee from taxes, as you can with interest on your home. The other "surprise" you will have on the 80/20, which is a short term negative is that there are 2 loans involved, so there are closing costs associated with the 2nd, Small processing fee (100-150), Lenders charge 100-150 for the 2nd underwriting, title sometimes charge extra fee for the extra policy, some closing offices charge an additional 100 to sign the papers. So you are looking at about 500 extra. I think well worth it. Charles Link to comment Share on other sites More sharing options...
wert Posted August 9, 2003 Report Share Posted August 9, 2003 I'm doing the 80/20 right now in my refi to afford PMI. Locked in 5.75% a couple of weeks ago and they're doing the papers. I did the math and I'm way ahead this way. Link to comment Share on other sites More sharing options...
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