Is a 80 15 5 loan right for you? 80 15 5 loans are also described as combination financing or "piggyback" loans. These type of loans offer a convenient way to provide creative financing in a purchase, refinance, home improvement, or debt consolidation transaction. In a purchase scenario, a second trust is often used in combination with a first trust so that the borrower can avoid paying Private Mortgage Insurance or PMI. The 1st trust is always set at 80% of your purchase price which eliminates the need for PMI. A 2nd trust deed of 15% of the purchase price is added and you supply 5% cash. There are several advantages to borrowers who take this approach:
1. Your entire payment is tax deductible whereas mortgage insurance is not.
2. You may decide to pay off your second early reducing your total payment.
However, there are some potential problems the borrower needs to be aware of before taking out an 80 15 5 loan.
1. Your second trust deed may include a prepayment penalty.
2. Depending on the interest of your 2nd, your total payment could actually be more.
A second mortgage or second trust deed loan is a loan secured by your property which takes second position to the first mortgage. A second trust carries a fixed interest rate for the life of the loan and amortization periods range from 5 to 20 years with a great new product amortized over 30 years with a balloon due in 15 years. The longer amortization period lowers your monthly payment significantly. Generally, your total debt ratio should not exceed 45% of your monthly pretax income.
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