80/15/5 Mortgage Loans

[SillyMe]

Anyone have any experience with them? What is are the pros/cons compared to a conventional loan with PMI?

 

[caitycaity]

i know about 80/20 loans. with an 80/15/5 is 15% the amount of the second mortgage and 5% the amount you put down?

pros of 80/20 loans:
lower mortage payment b/c no pmi
more interest that you can deduct (especially good if you are in a high tax bracket)

cons:
sometimes there is a high cost upfront b/c of an additional closing
if you live in the place you are buying or the area appreciates significantly, you could get rid of pmi relatively soon and not have to have 2 mortgages
you generally have to have decent credit to do an 80/20
interest rate on the second loan is usually a lot higher than the rate you get on the first loan - you need to work the numbers to figure out if pmi is a less expensive option or the higher interest rate. you also have to take into consideration how quickly you could get rid of pmi depending on appreciation and how long you plan to live in the house.
if the housing market cools off and your house loses value, you can end up owing a lot more with an 80/20 b/c of the higher interest rate.

you also need to think about if the second mortgage is an arm - interest rates seem like they are on the rise.

 

[Rafiki Rafiki Rafiki]

I have an 80/10/10 loan on my current home.

We priced conventional w/pmi, VA (because DH is military), and this loan. It was considerably less expensive in the long haul to go this way.

Think about it this way.

With a PMI payment, you're paying a premium to insure your loan on top of the house payment for 95% of the value of your house...for the lifetime of the loan.

With an 80/15/5, you're strictly paying for your mortgage...it's just 80% to one person, 15% to another.

Typically, your 15% is done on a shorter term, so your payment may be as high as it would have with PMI, but that 15% mortgage is usually amortized for a shorter period of time, such as 10 years.

After that 10 years, if you're comfortable with your mortgage payment, you can use the payment you had from the 15% loan to apply to the principal of your loan.

 

[mtemm]

we've done 4 mortgages in 4 years (we've moved a lot for dh's job). Our first mortgage was with no money down and we paid pmi. our second mortgage we were able to put 5% down and do a second mortgage for 15% so no pmi (yay!). I can't remember if that was an 80/15/5 or an 80/5/15...I get them mixed up. With our current house we were able to put 15% down, so only have the second mortgage for 5%.

It works out wonderfully for us. I hated pmi and am glad I only paid it for 10 months. I would rather be paying myself that money, which is how I see 80/15/5, 80/10/10, and 80/5/15 loans. Granted, you can get rid of pmi if you get to the point that your house has appreciated to the point that you have 20% down (or if you have a windfall and can put the cash money down). But in the meantime that money is just going to someone else.

 

[caitycaity]

With a PMI payment, you're paying a premium to insure your loan on top of the house payment for 95% of the value of your house...for the lifetime of the loan.

it's not for the life of the loan - it is until you have 20% equity.

 

[mickeyfan2]

it's not for the life of the loan - it is until you have 20% equity.

True, but not all bank automatically drop it. The loan holder may have to request it. I once worked with a guy who was still paying PMI after 25 years.

 

[SillyMe]

True, but not all bank automatically drop it. The loan holder may have to request it. I once worked with a guy who was still paying PMI after 25 years.

Wow! Thanks everyone. That's what I needed to know.

 

[caitycaity]

True, but not all bank automatically drop it. The loan holder may have to request it. I once worked with a guy who was still paying PMI after 25 years.

actually since 1999 it is federal law that they have to drop it after you get to 22%. you can request that they drop it at 20%.