Is an 80/20 loan a good idea? with a 10% discount right off the bat

[dullard]

Originally posted by: CU
Why did you include the PMI in the fancy loan? With a 80/20 loan you do not pay PMI. That is the point of a 80/20 loan. Over on ChubbyWallets financial forum everyone says avoid PMI and do 80/20 loans.

From the OP:

the rate for the 19,000 is 8% AND add about 178 to you monthly payment

I'm just following instructions exactly. I suspect he has the numbers wrong though. If he would like to update the numbers, I'll gladly edit.

80/20 loans are great IF the interest rate doesn't kill it. That is one big IF. And in this case, there is a massive difference between 8%/6.5% and 6%.

 

[TheSiege]

Originally posted by: dullard

Originally posted by: Vic
Their interest rate is a touch high though and you should ask them about that.

Bingo. That is the whole problem, if I understand the OP numbers correctly. Its an otherwise good deal that is ruined with high interest rates.

yeah some idiot receptionist quoted me the 6.62

and they told me at the office that the 8 percent was 8 no matter what

but from what i read on their website it says that the loan rates, both of them, are dependant on current rates which are around 5.9-6.1 right now

 

[TheSiege]

Originally posted by: dullard

Originally posted by: CU
Why did you include the PMI in the fancy loan? With a 80/20 loan you do not pay PMI. That is the point of a 80/20 loan. Over on ChubbyWallets financial forum everyone says avoid PMI and do 80/20 loans.

From the OP:

the rate for the 19,000 is 8% AND add about 178 to you monthly payment

I'm just following instructions exactly. I suspect he has the numbers wrong though. If he would like to update the numbers, I'll gladly edit.

80/20 loans are great IF the interest rate doesn't kill it. That is one big IF. And in this case, there is a massive difference between 8%/6.5% and 6%.

sorry i may have been a little confusing in my wording

the 178 is the monthly minimum payment for the 20 loan
and my bank quoted me 75 buck for PMI on the 100% loan

also the interest rate difference is only a real factor if i plan on having that loan for a long amount of time, in my case, i plan on having it for very little time

 

[dullard]

Originally posted by: TheSiege
sorry i may have been a little confusing in my wording

the 178 is the monthly minimum payment for the 20 loan
and my bank quoted me 75 buck for PMI on the 100% loan

$19,000 over 30 years at 8% interest is NOT $178/month. Something else is goofy there, if it is $178/month, then the interest rate is near 11% or the term isn't 30 years, or the amount isn't $19,000. But I'll change that to $178/month until you find new data and I'll eliminate the PMI on the fancy. I'll also lower the PMI on the normal.

Also, is it a true 10% discount, or is it just no interest on that 10% and you still owe that 10% later?

Give me 20 minutes to edit.

 

[TheSiege]

Originally posted by: dullard

Originally posted by: TheSiege
sorry i may have been a little confusing in my wording

the 178 is the monthly minimum payment for the 20 loan
and my bank quoted me 75 buck for PMI on the 100% loan

$19,000 over 30 years at 8% interest is NOT $178/month. Something else is goofy there, if it is $178/month, then the interest rate is near 11% or the term isn't 30 years, or the amount isn't $19,000. But I'll change that to $178/month until you find new data and I'll eliminate the PMI on the fancy. I'll also lower the PMI on the normal.

Give me 20 minutes to edit.

my guess is that it isnt for 30 years as is the case in most 80/20 loans. but i couldnt be for sure, its probably closer to 15 years

 

[dullard]

Originally posted by: TheSiege
my guess is that it isnt for 30 years as is the case in most 80/20 loans. but i couldnt be for sure, its probably closer to 15 years

Ok, I made it a 15 year loan for that 20% portion. Monthly cost at 8% is $181.57. So, in total you pay $758.48 + $181.57 = $940.06 each month with the fancy route. That is still far off from your $1055 number, so there must be at least one more thing wrong.

Assuming I now have it correct, with these changes, the fancy route is better in all years. However, but it really isn't very significant for most years. If you do stay in the house for 20+ years, then it is significant.

Edit: If you have the house value go up about 2-4% per year, then the two are basically equal. Why? Because you can drop PMI much sooner on the normal route. Here are the comparisons with a 4% yearly house valuation gain:

If positive, fancy is better, if negative normal is better.
[*]Year 1: $565.30
[*]Year 2: $1,100.68
[*]Year 3: $1,602.61
[*]Year 4: $2,067.20
[*]Year 5: $2,490.19
[*]Year 6: $1,966.90
[*]Year 7: $1,392.20
[*]Year 8: $760.45
[*]Year 9: $65.49
[*]Year 10: -$699.45
[*]Year 11: -$1,541.77
[*]Year 12: -$2,469.59
[*]Year 13: -$3,491.75
[*]Year 14: -$4,617.97
[*]Year 15: -$5,858.84
[*]Year 16: -$4,965.37
[*]Year 17: -$4,023.18
[*]Year 18: -$3,030.51
[*]Year 19: -$1,985.59
[*]Year 20: -$886.64
[*]Year 21: $268.16
[*]Year 22: $1,480.62
[*]Year 23: $2,752.54
[*]Year 24: $4,085.76
[*]Year 25: $5,482.07
[*]Year 26: $6,943.24
[*]Year 27: $8,471.03
[*]Year 28: $10,067.13
[*]Year 29: $11,733.20
[*]Year 30: $13,470.82

As you can see, there isn't much difference for the first 24 years. Sometimes the fancy is better, sometimes the normal is better.

 

[Tbirdkid]

the answer to your question, is yes. its a good idea. any time you can save pmi, you should do it. its just a bucket that mortgage banks sit on and eventually add to their bank accounts because they took a chance on you. to me, thats bs. so stick it to em as best as you can.

 

[woowoo]

Save till you get 10% down.

 

[TheSiege]

Originally posted by: dullard

Originally posted by: TheSiege
my guess is that it isnt for 30 years as is the case in most 80/20 loans. but i couldnt be for sure, its probably closer to 15 years

Ok, I made it a 15 year loan for that 20% portion. Monthly cost at 8% is $181.57. So, in total you pay $758.48 + $181.57 = $940.06 each month with the fancy route. That is still far off from your $1055 number, so there must be at least one more thing wrong.

Assuming I now have it correct, with these changes, the fancy route is better in all years. However, but it really isn't very significant for most years. If you do stay in the house for 20+ years, then it is significant.

Edit: If you have the house value go up about 2-4% per year, then the two are basically equal. Why? Because you can drop PMI much sooner on the normal route. Here are the comparisons with a 4% yearly house valuation gain:

If positive, fancy is better, if negative normal is better.
[*]Year 1: $565.30
[*]Year 2: $1,100.68
[*]Year 3: $1,602.61
[*]Year 4: $2,067.20
[*]Year 5: $2,490.19
[*]Year 6: $1,966.90
[*]Year 7: $1,392.20
[*]Year 8: $760.45
[*]Year 9: $65.49
[*]Year 10: -$699.45
[*]Year 11: -$1,541.77
[*]Year 12: -$2,469.59
[*]Year 13: -$3,491.75
[*]Year 14: -$4,617.97
[*]Year 15: -$5,858.84
[*]Year 16: -$4,965.37
[*]Year 17: -$4,023.18
[*]Year 18: -$3,030.51
[*]Year 19: -$1,985.59
[*]Year 20: -$886.64
[*]Year 21: $268.16
[*]Year 22: $1,480.62
[*]Year 23: $2,752.54
[*]Year 24: $4,085.76
[*]Year 25: $5,482.07
[*]Year 26: $6,943.24
[*]Year 27: $8,471.03
[*]Year 28: $10,067.13
[*]Year 29: $11,733.20
[*]Year 30: $13,470.82

As you can see, there isn't much difference for the first 24 years. Sometimes the fancy is better, sometimes the normal is better.

1055 is with taxes and insurance also
also i will have the 20 loan payed off in 2 years max, that also makes a big difference

 

[Vic]

Originally posted by: TheSiege

Originally posted by: dullard

Originally posted by: Vic
Their interest rate is a touch high though and you should ask them about that.

Bingo. That is the whole problem, if I understand the OP numbers correctly. Its an otherwise good deal that is ruined with high interest rates.

yeah some idiot receptionist quoted me the 6.62

and they told me at the office that the 8 percent was 8 no matter what

but from what i read on their website it says that the loan rates, both of them, are dependant on current rates which are around 5.9-6.1 right now

So talk to a real loan officer. Have you even done that with your bank or did you read the 6% off the signboard? If so, it's probably not correct. High LTV/CLTV financing is generally a little more expensive, even if your credit is absolultely perfect.

 

[Vic]

Originally posted by: Tbirdkid
the answer to your question, is yes. its a good idea. any time you can save pmi, you should do it. its just a bucket that mortgage banks sit on and eventually add to their bank accounts because they took a chance on you. to me, thats bs. so stick it to em as best as you can.

This is not accurate. Mortgage insurance is a genuine form of insurance that mortgage banks pay to 3rd-party mortgage insurance companies. They don't pocket a dime of it (by law), although the existence of mortgage insurance on a high LTV loan package does improve its salability (or is usually a secondary market requirement for salability, period).

It is true that one should wish to avoid MI, but not for the reason you gave, but because it is not tax deductible. Because many loan programs allow the MI to be paid for by the mortgage lender and then let that cost be absorbed into the interest rate, a better option is take a slighter higher interest rate instead of the MI, hopefully where the payments would balance out, because the interest would be tax deductible. Be advised everyone that 80/20 combo programs are starting to lose their favor in the market, so you should get one while you still can if you want one, as most lenders are moving to straight 100% single loan financing, which would then be offered at the "blended" rate (i.e. that of the 1st and 2nd mortgage options combined).

 

[vi edit]

Be advised everyone that 80/20 combo programs are starting to lose their favor in the market, so you should get one while you still can if you want one, as most lenders are moving to straight 100% single loan financing, which would then be offered at the "blended" rate (i.e. that of the 1st and 2nd mortgage options combined).

Losing favor from lendors or borrowers?

And why?

 

[Vic]

Originally posted by: vi_edit

Be advised everyone that 80/20 combo programs are starting to lose their favor in the market, so you should get one while you still can if you want one, as most lenders are moving to straight 100% single loan financing, which would then be offered at the "blended" rate (i.e. that of the 1st and 2nd mortgage options combined).

Losing favor from lendors or borrowers?

And why?

Lenders. Because they have little recourse when borrowers default on the piggyback 2nd.

 

[TheSiege]

**UPDATE**

Ok so with the 80/20 loan the rates are 6 for the 80 and 6.5 for the 20 with 500 earnst money and 1k down of my own
120k for the 80 and about 19 for the 20 and thats what i learned today, my monthly payment would be 988

 

[Ameesh]

with the difference being so little a month i would go with the simpler loan to be able to manage my money easier. thats just me.

 

[imported_griffis]

Originally posted by: TheSiege

Originally posted by: vi_edit

Originally posted by: griffis
its always best to do 100% financing if you can

If you are saying 100% in one loan, I disagree. You can get out of sizeable PMI amounts breaking it up 80/20. These can be anwhere from $50-$200(or more) a month. And it's not tax deductible. At least with the higher interest on the second loan you can deduct it.

Plus at least for me, there is some feeling of managibility having a smaller loan out there that I can easily whittle away at instead of single giant one. I can always knock out the smaller one in a fairly quick manner if I want.

this was my thinking, i can take care of this 19k loan, which would really be closer to 13k in about a year. right now i am saving 2k a month, after i get the house that will drop to about 1k a month, with tax return and company stock options, i should be able to pay this off in 12 months

whats the rate on the second loan? It's usually signifigantly higher.

 

[bsobel]

I don't really have much to add over what Dullard already posted, but I just wanted to make the comment that this is the type of thread that (IMHO) actually makes ATOT a usefull resource. Cheers to everyone who responded to the OP.

And to TheSiege directly, congrats on your upcoming purchase, the Provo area is beautiful (ski much?)

 

[TheSiege]

Originally posted by: bsobel
I don't really have much to add over what Dullard already posted, but I just wanted to make the comment that this is the type of thread that (IMHO) actually makes ATOT a usefull resource. Cheers to everyone who responded to the OP.

And to TheSiege directly, congrats on your upcoming purchase, the Provo area is beautiful (ski much?)

snowboard, once in awhile, most of my ATOT posts end in me being flamed

 

[TheSiege]

Originally posted by: griffis

Originally posted by: TheSiege

Originally posted by: vi_edit

Originally posted by: griffis
its always best to do 100% financing if you can

If you are saying 100% in one loan, I disagree. You can get out of sizeable PMI amounts breaking it up 80/20. These can be anwhere from $50-$200(or more) a month. And it's not tax deductible. At least with the higher interest on the second loan you can deduct it.

Plus at least for me, there is some feeling of managibility having a smaller loan out there that I can easily whittle away at instead of single giant one. I can always knock out the smaller one in a fairly quick manner if I want.

this was my thinking, i can take care of this 19k loan, which would really be closer to 13k in about a year. right now i am saving 2k a month, after i get the house that will drop to about 1k a month, with tax return and company stock options, i should be able to pay this off in 12 months

whats the rate on the second loan? It's usually signifigantly higher.

6% on to 80 which is 120k and 6.5 on the 20 which is 19k

 

[Vic]

Let me review the terms:

$150k purchase price
$120k 1st at 6% 30 fixed
$19k 2nd at 6.5% 30 fixed
$15k deferred 0% payable only if the house is sold in the first 15 years
$1k minimum down payment per program requirements
$500 earnest (which I assume can be used towards down).

That makes $155k, so $5k closing costs?? I suppose that's not too unreasonable if closing costs include recurring like full year's property taxes and hazard insurance.

I'd say go for it if you want the house.

 

[dullard]

Originally posted by: Vic
Let me review the terms:

$150k purchase price
$120k 1st at 6% 30 fixed
$19k 2nd at 6.5% 30 fixed
$15k deferred 0% payable only if the house is sold in the first 15 years
$1k minimum down payment per program requirements
$500 earnest (which I assume can be used towards down).

That makes $155k, so $5k closing costs?? I suppose that's not too unreasonable if closing costs include recurring like full year's property taxes and hazard insurance.

I'd say go for it if you want the house.

Now that TheSiege posted the real rates are 6% and 6.5% instead of 8%, then I agree with Vic that this is a good deal.

I am still a bit confused with the 15k loan. From the website linked above it is a loan (not a discount). On that 15k loan, the payments and interest are deferred until the home is sold. I don't see where he got the 15 years part. It appears like it is always payable, but it simply isn't due until you sell the house. Even still, that is a good deal with the new lowered interest rates.