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Old 04-14-2013, 12:58 AM
 
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My wife and I are in the market for a new house. We have good income and some money saved up, but not enough to reach 20% on the homes we are looking for (and can afford the mortgage for). Or rather, we COULD reach 20% but we would be borrowing against our 401k's, something we are not enthusiastic about doing.

A mortgage broker I have been working with proposed a 80-10-10 loan. She wasn't trying to sell me on it, but just present it as an option. Her statement was the 1st trust deed is at 3.25% fixed for 10 years, 30 year loan and the 2nd is at 5.1% interest only 30 year due and payable in 15.

So first, is this how the 80-10-10 works? I googling a bit, I understood (maybe incorrectly!) that the first was fixed for 30 years. Is that not true? It's definitely not what she said. Second, why would I want this loan? Interest rates are crazy low right now, in 10 years, if what she said is true, I would get in some serious trouble if interest rates were higher than 3.25%. Particularly in the prices we are looking at. And what exactly does that mean, '30 year due and payable in 15'?

And last, if I could dream a bit and was told that it WAS fixed 30yr at 3.25%, is there a max on the first for the 80-10-10? Other than what we qualify for I mean?

Thanks!
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Old 04-14-2013, 06:30 AM
 
3,588 posts, read 6,571,414 times
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Quote:
Originally Posted by nicros View Post
My wife and I are in the market for a new house. We have good income and some money saved up, but not enough to reach 20% on the homes we are looking for (and can afford the mortgage for). Or rather, we COULD reach 20% but we would be borrowing against our 401k's, something we are not enthusiastic about doing.

A mortgage broker I have been working with proposed a 80-10-10 loan. She wasn't trying to sell me on it, but just present it as an option. Her statement was the 1st trust deed is at 3.25% fixed for 10 years, 30 year loan and the 2nd is at 5.1% interest only 30 year due and payable in 15.

So first, is this how the 80-10-10 works? I googling a bit, I understood (maybe incorrectly!) that the first was fixed for 30 years. Is that not true? It's definitely not what she said. Second, why would I want this loan? Interest rates are crazy low right now, in 10 years, if what she said is true, I would get in some serious trouble if interest rates were higher than 3.25%. Particularly in the prices we are looking at. And what exactly does that mean, '30 year due and payable in 15'?

And last, if I could dream a bit and was told that it WAS fixed 30yr at 3.25%, is there a max on the first for the 80-10-10? Other than what we qualify for I mean?

Thanks!
Let's simplify things for you.

What you are being sold is essentially:

1. First loan is 3.25% 10 year ARM which will adjust after 10 years. The payments are based on a 30 year loan amortization schedule. After 10 years of fixed payments, the interest rate COULD potentially raised usually by a maximum of 5%. Read the fine print. It's usually 5/2/5 cap structure. Meaning after 10 years your rate could go as high as 8.25% but no more.

2. 2nd loan involves a balloon payment after 15 years. It's commonly known as a 30/15 2nd loan. Meaning payments are calculated over 30 years. But in reality there will be a balloon payment due at 15 years or you risk being in default.

Does the balloon payment worry people? Highly unlikely. Again read the fine print. May sure the 2nd loan can be refinanced. During the housing boom, some 2nd loans could not be refinanced or involved a pretty big 2-3% "prepayment" penalty if it were refinance before 24 or 36 months.

Well, it's obvious you don't want to pay PMI. It's pretty obvious you don't have the 20% down regardless if you COULD take money from your 401K. Anytime you want to take money from your 401K, it involves risk (pros and cons...sure you will read up on it and of course tax implications).

So why do they sell these loan products?

1. Most people won't stay in their homes for 10 years
2. Avoid PMI
3. Most people could refinance the loan later before the 10 years is up (again read the fine print about prepayment penalties if the mortgage is refinanced or home is sold).

It's up to you to decide whether it's a good product to go with. My brother and sisters are all high earners and they have always gone with 3-5-7-10 year ARMs Arms are good products for many people. A 10 year ARM involves very little risk. Most people generally stay in their homes less than 7 years.
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Old 04-14-2013, 06:33 PM
 
2,729 posts, read 4,972,081 times
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The general the layout of the 80/10/10 is correct. I simply question the value of an interest only loan and an ARM when you say you are comfortable on the payment as well as the fact that the interest rate on ARM and fixed rates are not really that big to play the ARM game. People who have money that can refinance easily anytime they want like the above poster mentioned, or a souring real state market ARM could be a great tool but doesn't seem like for you, IMO.

If I were to go 80/10/10 route, I would go for the fixed interest rate. Another thing I would check is what will be the difference overall if you were to have a 10% down loan with a mortgage insurance. Run that number too and see which one make sense to you.
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Old 04-15-2013, 06:49 PM
 
3,805 posts, read 8,931,887 times
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Quote:
Originally Posted by MeInDenudinFL View Post
The general the layout of the 80/10/10 is correct. I simply question the value of an interest only loan and an ARM when you say you are comfortable on the payment as well as the fact that the interest rate on ARM and fixed rates are not really that big to play the ARM game. People who have money that can refinance easily anytime they want like the above poster mentioned, or a souring real state market ARM could be a great tool but doesn't seem like for you, IMO.

If I were to go 80/10/10 route, I would go for the fixed interest rate. Another thing I would check is what will be the difference overall if you were to have a 10% down loan with a mortgage insurance. Run that number too and see which one make sense to you.

Exactly.
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Old 04-16-2013, 07:14 AM
 
3,588 posts, read 6,571,414 times
Reputation: 1457
Quote:
Originally Posted by MeInDenudinFL View Post
The general the layout of the 80/10/10 is correct. I simply question the value of an interest only loan and an ARM when you say you are comfortable on the payment as well as the fact that the interest rate on ARM and fixed rates are not really that big to play the ARM game. People who have money that can refinance easily anytime they want like the above poster mentioned, or a souring real state market ARM could be a great tool but doesn't seem like for you, IMO.

If I were to go 80/10/10 route, I would go for the fixed interest rate. Another thing I would check is what will be the difference overall if you were to have a 10% down loan with a mortgage insurance. Run that number too and see which one make sense to you.
That is incorrect. If the OP wants to chime in. The 10 year ARM they will be getting involves principal payments. It is highly unlikely that it's a 10 year interest only ARM.
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Old 04-23-2013, 11:05 PM
 
14 posts, read 81,012 times
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Originally Posted by aneftp View Post
That is incorrect. If the OP wants to chime in. The 10 year ARM they will be getting involves principal payments. It is highly unlikely that it's a 10 year interest only ARM.
Yes, this is correct.

Sorry for the delay in getting a response here! These were great posts, much appreciated.
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Old 04-24-2013, 03:55 AM
 
Location: Sloooowcala Florida
1,393 posts, read 3,000,849 times
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It helps you to avoid Private Mortgage Insurance, PMI.
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Old 04-24-2013, 11:43 AM
 
3,805 posts, read 8,931,887 times
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Quote:
Originally Posted by aneftp View Post
That is incorrect. If the OP wants to chime in. The 10 year ARM they will be getting involves principal payments. It is highly unlikely that it's a 10 year interest only ARM.
So what! It's an ARM. Why on Earth would anyone buy with an ARM unless they plan to MOVE, not refinance??

You really think Fixed Rates are going to be anywhere near where they are today, in ten years??
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Old 04-25-2013, 02:14 PM
 
Location: New York
2,251 posts, read 4,744,015 times
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My $00.02

A lot of confusion here .....

First -My name says what I do now, I worked as a mortgage broker / loan officer for many years. ...

I have a big vendetta against mortgage banks. It is a fact a home owner pays 3 to 5 times more over the life of a loan, to what the original purchase price was.

The 80-10-10 mortgage program has been around for years. There's a 1st mortgage at 80%, a 2nd mortgage for 10% (normally a Heloc). The buyer puts down 10% for the down payment. The main benefit is the buyer doesn't pay PMI. The bad about Heloc's, like a credit card you pay on it forever if only the minimum payment is made. I do not recommend them!!

The confusion above is not which program they are buying the home with , it's the terms of the individual loans. OP saying "1st mortgage fixed for ten years"? That sounds like a 10/1 ARM - ten years fix and every year adjustable. Chase Mortgage is currently has one offering @ 2.559%. These types of mortgages are called designer loans.

Looking back at the 1,000's of individual mortgages across the country - I've originated, processed, closed, modified, reviewed - cannot remember working with a 10/1ARM. Other than be these type of loans being offered - in my opinion not many if any people have these types of loans.

Understand accepting an adjustable loan - you simply have to ask yourself how long do you except to live in that property. A 10/1 ARM? - ten years in the future?, will you have enough equity to sell for a profit. To put towards a down payment on your next home? If you stay, will you have equity to refinance? Think about the future costs when you do refinance, starting at 5% on the balance for closing costs, rolling into a loan (eating up equity). Adding to the fact having a second mortgage, even in 10 years there will minimal equity is use (unless gold is struck in the backyard). I do not like the above deal OP is getting.

I challenge OP to a question, do you want to pay more or pay less paying for a home?

Comparing to rushing into a property having two mortgage payments. Checking into how much they would pay over the next ten, twenty, thirty years. Having two mortgage payments you will spend more.

Comparing how long it would take to save up the additional money to put down the 20%? Only having one loan.Taking the time (depending how much you save), only having one payment over the next ten, twenty, thirty years you will spend less.

The OP sound's educated, employed earning a good income, looks to be intelligent. Again - do you want to pay more or pay less for your home?

---- -----

Having extra money you can also send more to the principle. We paid our 30year loan off in 12.5 years. Last fall installed solar panels on our home. It's the biggest rush seeing your electric meter running backwards. This summer my wife and I are planning a cruise to Alaska. Next year already planning a cruise to the Mediterranean.

Point - having extra money you can put towards further education, children (big expense), and enjoying a better quality of life.

Also piece of financial advice - unless you have an employer that contributes into a 401k, stay away for them. You can borrow against them to purchase a home. 401k's allow deductions on your income taxes for what you deposit.

Looking at how income tax has risen over the last several years. When you retire, the taxes may be higher than what they are today. If you want your money to grow tax-free, suggest looking into having a portfolio of Municipalities which are tax exempt.

I expect interest rates on Mortgages are going to be low at least for the short term. If the next president is republican, expect the rates to go up after the election (noting most investors are republicans). Also seeing home values shot up over the last decade then values dropped. Now values have equalized. I do not see the rush to buy a property because values are not going to jump. Do not let a loan officer convince (sell) you "it's the last time to get these low rates", it is going to be a buyers market for the next couple of years.

Again I would wait so you have more money to put down.

Good Luck....

.

Last edited by Modification Specialist; 04-25-2013 at 03:10 PM..
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Old 08-04-2014, 03:09 PM
 
1 posts, read 6,599 times
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Knowing the statistics, I say get into an ARM loan, be it a 10/1, at the 80%, get a I/O second at around 5%, put down the 10%. Avoid the PMI, because if you make over a 100k, which sounds like you do, you can't right of the PMI. Get in the house, reap the tax benefits, build some equity, do some home improvement and cash out 7-9 years down the road and then purchase your dream home. For the most part, real estate will not hurt you in the long haul, so jump in and enjoy being a home owner.
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