U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Real Estate > Mortgages
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
 
 
Old 04-12-2015, 02:32 PM
 
2,188 posts, read 2,515,902 times
Reputation: 1610

Advertisements

Our first home purchase back before the real estate meltdown was an 80/15/5 structure, where there were 2 loans and we had 5% down. I know they also sometimes structure them 80/10/10. This seemed to work out pretty well for us. On our last purchase our loan was structured with one lender at less than 80% LTV, so we had PMI. We've since refinanced it into an 80% LTV loan, but we'll probably be buying again in the next couple of years so it's got me thinking. What is the downside to 80/15/5 or 80/10/10 if you don't have a 20% downpayment, besides I suppose lack of lenders offering it? It seems like a no brainer. You don't pay PMI which is non-deductible for tax purposes for moderate to high income earners, and you can pay off the 2nd trust early and lower your monthly payment if your cash flow is good, which is the case for alot of people. It seems like this is a great option for people with less than 20% down but I don't hear many people talking about it. I'm considering looking into it for our next purchase if we're once again looking at having less than 20% down and PMI.
Quick reply to this message

 
Old 04-13-2015, 07:48 AM
 
12,404 posts, read 9,209,597 times
Reputation: 8868
You have to run the numbers. Compute the total annual interest expense plus PMI under each scenario, then compare.

Also some HELOCs have a balloon payment. If home value drops you might not be able to refi, which you should think about, unless you will have other options for paying it (for example, paying enough extra each month to fully amortize the 2nd mortgage, or paying enough extra to shrink the balloon to a much smaller amount and then taking out a PLOC to pay off the residual balance.)
Quick reply to this message
 
Old 04-14-2015, 06:46 AM
 
Location: Annandale, VA
5,098 posts, read 4,125,323 times
Reputation: 4199
Quote:
Originally Posted by FCNova View Post
Our first home purchase back before the real estate meltdown was an 80/15/5 structure, where there were 2 loans and we had 5% down. I know they also sometimes structure them 80/10/10. This seemed to work out pretty well for us. On our last purchase our loan was structured with one lender at less than 80% LTV, so we had PMI. We've since refinanced it into an 80% LTV loan, but we'll probably be buying again in the next couple of years so it's got me thinking. What is the downside to 80/15/5 or 80/10/10 if you don't have a 20% downpayment, besides I suppose lack of lenders offering it? It seems like a no brainer. You don't pay PMI which is non-deductible for tax purposes for moderate to high income earners, and you can pay off the 2nd trust early and lower your monthly payment if your cash flow is good, which is the case for alot of people. It seems like this is a great option for people with less than 20% down but I don't hear many people talking about it. I'm considering looking into it for our next purchase if we're once again looking at having less than 20% down and PMI.

I would definitely go with the 2nd trust option. Your PMI payments are and expense and it is just throwing money away. The only one being protected is the bank. You are paying premiums on THEIR behalf.
Quick reply to this message
 
Old 04-14-2015, 07:04 AM
 
Location: Southern California
4,350 posts, read 4,937,863 times
Reputation: 2129
You don't hear it much because many people blame the low downpayment loans as the cause of the mortgage meltdown, but it really wasn't. Still very easy to find these types of programs if you ask for it.
Quick reply to this message
 
Old 04-14-2015, 08:40 AM
 
2,188 posts, read 2,515,902 times
Reputation: 1610
Quote:
Originally Posted by Spaten_Drinker View Post
I would definitely go with the 2nd trust option. Your PMI payments are and expense and it is just throwing money away. The only one being protected is the bank. You are paying premiums on THEIR behalf.
Yeah, I'm kind of kicking myself I didn't look into it further with my current purchase, even though I've since refinanced out of PMI I still would've saved money. I guess it's not offered by a lot of lenders because I never hear much about it anymore. People would have to run numbers for their situation but it seems like there's very little downside vs either paying monthly PMI or paying the huge PMI premium upfront. Especially since a lot of people like to put extra principal payments towards their mortgage as their income/cash flow increases. That typically shortens the loan period, but in this case you'd actually significantly decrease your monthly payment once you eventually knock out the subordinate loan.
Quick reply to this message
 
Old 04-14-2015, 12:46 PM
 
Location: New York
2,251 posts, read 4,163,764 times
Reputation: 1607
Quote:
Originally Posted by FCNova View Post
Yeah, I'm kind of kicking myself I didn't look into it further with my current purchase, even though I've since refinanced out of PMI I still would've saved money. I guess it's not offered by a lot of lenders because I never hear much about it anymore. People would have to run numbers for their situation but it seems like there's very little downside vs either paying monthly PMI or paying the huge PMI premium upfront. Especially since a lot of people like to put extra principal payments towards their mortgage as their income/cash flow increases. That typically shortens the loan period, but in this case you'd actually significantly decrease your monthly payment once you eventually knock out the subordinate loan.
OP - Whats your "Rush" to spend more money?
  • Have you considered have much you will save by taking out a smaller loan?
  • The reason why you don't hear about this is banks make less money if you take out a smaller loan.
  • Conversely banks make more money if you take out a larger loan.
  • Example a home with purchase price $100,000. Considering the time it would take to save up for a 20% down payment = 80% LTV and eliminate the PMI. Verse how much more you would pay for a larger loan with PMI.
Example A
10% down payment $10,000
Loan amount $90,000 x 4.5% x 30 yr = $505 (+ PMI and Escrows)
Loan Lifetime 360 payments equal = $181917

Example B

20% down payment $20,000
Loan amount $80,000 x 4.5% x 30 yr = $403 (+ Escrows)
Loan Lifetime 360 payments equal = $145,080
(Noting - possibly lower interest rate for 80% LTV)

Example B: paying 20% down or more will result in a 100% better loan and lower payment. Giving you the option to pay down the principle faster, shortening the term. In my opinion across the country it is a Buyers Market, for the short term prices are not going to raise as they did in the early 2000's. You are looking to save money by paying less? Suggest you start looking at ways to invest in yourself long term so you spend less in your future.

Good Luck



..

Last edited by Modification Specialist; 04-14-2015 at 01:01 PM..
Quick reply to this message
 
Old 04-14-2015, 01:22 PM
 
5 posts, read 4,064 times
Reputation: 13
It really depends how long you intend to stay in the house. Typically the second loan is at a higher rate. Assuming 30 Years on primary and 15 on second loan. If you plan to stay in the house less than 8 years or more than 20 then it makes sense to go with the 80/10/10. However if you see yourself there from 9-19 years than taking 30 year and paying PMI makes more sense.
Quick reply to this message
 
Old 04-14-2015, 02:10 PM
 
2,188 posts, read 2,515,902 times
Reputation: 1610
Quote:
Originally Posted by Modification Specialist View Post
OP - Whats your "Rush" to spend more money?

..
It's easier said than done in high COL areas. There's reasons why we may not have full 20% down which I won't get into, but I assure you it happens a lot in major metro areas where home prices are high. Life is about happiness, not just the ROI. Sometimes it's worth it to spend more.

You seem to know a lot about loans, I figured you'd offer some insight about 80/x/x structures vs PMI. Of course putting down a full 20% results in less interest paid over the life of a loan.
Quick reply to this message
 
Old 04-14-2015, 04:29 PM
 
5 posts, read 4,064 times
Reputation: 13
There are also situations where paying PMI or doing a 80/xx/xx would save you money. With increasing home prices and eventual rise in interest rates, waiting until you have 20% down could cost you much more over the course of a loan.
Quick reply to this message
 
Old 04-14-2015, 05:29 PM
 
Location: New York
2,251 posts, read 4,163,764 times
Reputation: 1607
Quote:
Originally Posted by FCNova View Post
It's easier said than done in high COL areas. There's reasons why we may not have full 20% down which I won't get into, but I assure you it happens a lot in major metro areas where home prices are high. Life is about happiness, not just the ROI. Sometimes it's worth it to spend more.

You seem to know a lot about loans, I figured you'd offer some insight about 80/x/x structures vs PMI. Of course putting down a full 20% results in less interest paid over the life of a loan.
An analogy what I do is like a card game between a lender and borrower. Looking at the borrowers card's if they have a winning hand. Many years was a loan officer, now my name says what I do. 20 years in college, still learning new things. Still don't know what I want to be when I grow up...lol!!!!!

Major metro? Live in New York 45 minutes from the City < have a good idea what "ridiculously" high COL areas are. Cannot count the number of homeowners nationally spoken too over the years. Who rushed into a situation with little or nothing down. Made high payments are ended up with little to show. Next property having to start from the beginning. The dream on getting rich with real estate does exist, but for most it boils down to money management whether or not it becomes a reality.

It is good you are not considering an FHA loan. These types of loans now have lifetime MIP. Doing a conventional loan is better, because you don't incur the costs later to refinance for the PMI to drop off. The any good thing is for the bank, the MI makes the loans more secure. More profit when banks sell the loan.

My experience examining 80/x/x situations - having a 1st and 2nd mortgage with a 10% down payment.
  • Most of the time have seen the 1st mortgage was a fixed rate. Because there was a 2nd mortgage, the interest rate on the 1st wasn't as low has it be could be compared to one loan at 80% LTV.
  • The 2nd mortgage required payment has less than an amortized-payment.
  • Similar to a credit card, only making smallest payment, these types of loans last for a very long time.
  • Although better than MI or PMI, the mortgage interest is deductible on your 1040 - schedule A income taxes.
  • In my opinion because the payments are minimal - your not getting ahead. Yes you can sent in extra, nothing is pushing you to do so.
  • When it comes time to refinance, you will discover your equity is not there.

You should also look at one loan at 90% LTV, a higher rate with no PMI. Your equity grows faster and the interest is a huge tax deduction off your taxes. Around 23 years into start looking at refinancing into a 20 or 15 year term, to get a better rate and lower payment. Pay extra - pay off your mortgage early.

Five years ago paid of our mortgage early 30/14 yrs. Three years ago brought (not leased) Solar panels, before electric bill $220, now monthly $10 to $40 depending on how much sun-lite we get. Last month paid off car loan. Credit score 800+ - people with good credit score equal minimum solicitations. Yes life is about happiness, it is also about how well one manages their life. If I had a chance to do it again knowing what I know today, would of paid of my mortgage sooner.

,

Last edited by Modification Specialist; 04-14-2015 at 05:40 PM..
Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


 
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:
Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Real Estate > Mortgages
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2018, Advameg, Inc.

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top