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80/20 question


tryingtogetbackontrack
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I have a question about how an 80/20 loan works...I've heard that on the 20 part you only pay the interest on that..is that true?

And for any loan people out there...I'm trying to get an 'estimate' on an 80/20 loan of $184,474 if the 80 is done at 6.99% and the 20 is done at 10.5 and the yearly property tax is $5600 and the yearly mortgage insurance is $1080 .... I know I can't get an exact payment but I'm trying to get a close estimate to see if I should even be considering this option .... Thanks in advance for your help!

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If the second mortgage is a HELOC, then the interest only payment rules would apply (usually for the first ten years). Of course, if you were to ever expect to pay off the second mortgage, then you would have to pay above the interest only payment or refinance before the interest only payment period is over.

For the second part of your question, I will first calculate your monthly escrow payments. The property tax will be $5600/12 or $466.67 per month. The Homeowners Insurance portion will be $1,080/12 or $90.00 per month. This will give you a total monthly escrow of $556.67/mo.

That was the easy part. I will calculate your mortgage two different ways for you, the first will be with fully amoritized 2nd mortgage and first. Your first mortgage amount will be 80% of $184,474 ($147,579.20), the second mortgage will be 20% of $184,474 ($36,894.80).

With a 6.99% interest rate on the first mortgage, the principal and interest portion on the first mortgage would be $981.40, the second mortgage would have a payment of $368.01.

This would give you a total principal and interest payment of $1349.41 plus escrows of $556.67, or total payment of $1,906.08.

An interest only second mortgage would lower your monthly payment to $322.83 (a savings of $45.18 per month), leaving a total payment of $1860.90/mo.

My suggestion would be to look more towards an interest only first mortgage with a fixed rate second mortgage. The interest rate will be about 1/8% higher, bringing the first mortgage to 7 1/8%. This would lower the first mortgage payment to $876.25/mo. (a savings of $105.15 per month). Apply the interst only savings to paying down the second mortgage balance to eliminate the second mortgage faster.

Oh what the heck, go ahead with an interest only first and an interest only second and save $150.00/mo. Of course, you will be depending on normal price appreciation only to build any equity in the home. Usually after ten years on an interest only loan, you will have to either start paying a higher mortgage payment based on a twenty year loan (unless it is a forty year loan) or refinance.

Hope that helps.

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