||80 - 20 Mortgage Loans To Save On Mortgage Insurance
By Mary Wise
This means that anything above 80% of financing will cost you significantly more. However, with 80/20 mortgage loans you can save on mortgage insurance. 80/20 mortgage loans are actually two loans in one. The first one being the actual mortgage loan that will finance the 80% of the propertyís value thus not requiring private mortgage insurance and the other one will provide funds equivalent to 20% of the propertyís value in the form of a second mortgage or home equity loan.
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Avoiding Payment of Private Mortgage Insurance (PMI)
These loans or combination of loans solve a problem that turned 100% financing mortgage loans into a really heavy burden. Any loan that finances above 80% of the value of a property needs to include private mortgage insurance in order to cover for the repayment of the loan if anything happens. Thus, this combination of loans provides 100% financing without the need of Private Mortgage Insurance.
Private mortgage insurance is not required because the actual mortgage only finances 80% of the value of the property. The rest of the assetís value is financed with a second mortgage or home equity loan that coverís for the remaining 20% without the need of Private mortgage insurance either.
Private Mortgage Insurance
Private mortgage insurance protects the lender against any loss in the event of default on the mortgage loan. The insurance is similar to government agencies insurances like FHA with the sole difference that it is meant for private mortgages only. The premium is paid by the borrower and is usually included on the mortgageís monthly payments.
Usually this extra charge can be bypassed by offering a substantial down payment and thus not requiring more than 80% of the funds needed to purchase the property that is used as collateral for the loan. Thatís why most applicants try to raise at least 20% of the value of the property in order to avoid having to pay the private mortgage insurance premium that is rather expensive.
A Matter Of Costs
Nothing comes for free and obtaining the additional financing through 80/20 mortgage loans is not the exception. The home equity loan that grants the funds needed for the 20% down payment comes with higher interest rates, a shorter repayment program and generally less advantageous terms than the home loan. This is due to the fact that even that home equity loans are secured loans, there is a greater risk of defaulting on a home equity loan than on a home loan.
However, when comparing the costs of private mortgage insurance and the additional amount that youíll have to pay for the home equity loan, youíll understand why these loans are becoming so popular. Even with the additional costs that they represent, youíll still save a lot of money by not having to pay the private mortgage insurance premiums every month through the whole life of the loan.
Mortgage Refinancing - Comparison Shop Smartly And Save
By Louie Latour
Shopping for the best mortgage offer will help you find the best deal if you go about it correctly. Many homeowners simply end up with the best of the worst mortgage loans because they donít negotiate for the interest rate they deserve. Mortgage loans are wholesale products and if youíre not careful the ďmiddlemanĒ will markup up your interest rate; here are several tips to help you avoid paying retail markup when refinancing your home loan.
Many homeowners donít realize that mortgage loans are retail products just like kitchen appliances; just like kitchen appliances there is a wholesaler and a retailer that marks up the loan for a profit. How can you cut the middleman out when refinancing your mortgage? Homeowners who understand how mortgage rates are marked up by their loan originator can negotiate to avoid paying this markup.
Youíre already paying origination fees to your mortgage company or broker for their part in arranging your loan; if you accept a retail mortgage rate when refinancing youíre actually paying double, even triple for your new loan. So what is this retail markup? Itís called Yield Spread Premium and hereís an example of how it works.
Suppose youíre refinancing your mortgage for $300,000 at 6.75%. Your mortgage company charges you one percent, or $3,000 for the loan. One percent is a reasonable fee to pay; however, what the mortgage company isnít telling you is that the wholesale lender behind your loan approved you at 6.25%. Your mortgage company marked up your rate because the lender pays them an additional one percent of your loan amount for every .25% you agree to overpay. This mortgage company receives $6,000 from the lender on top of the $3,000 you paid, and you get stuck paying too much mortgage interest.
The good news is that if you learn how to recognize this markup you can avoid paying it. As you can see, proper comparison shopping requires negotiation; not simply comparing apples to apples with the mortgage quotes you receive. You can learn more about refinancing your mortgage while avoiding costly mistakes with a free mortgage tutorial.
To get your FREE six-part Mortgage Refinancing Tutorial, visit RefiAdvisor.com using the link below.
Louie Latour specializes in showing homeowners how to avoid costly mortgage mistakes and predatory lenders. To get your hands on this free video tutorial: "Mortgage Refinancing - What You Need to Know," which teaches strategies for finding the best mortgage and saving thousands of dollars in the process, visit Refiadvisor.com.