The Piggyback Second Mortgage provides an option to home buyer who can not afford a twenty percent down payment. Without enough funds for twenty percent down payment, the home buyer pays an expensive Private Mortgage Insurance (PMI). Mortgage Lenders are able to provide the usual ten percent second mortgage without PMI. Only a few mortgage lenders can provide fifteen or twenty percent second mortgage without PMI.
Another term for piggyback second mortgage are 80/10/10, 80/15/5, 80/20/0 mortgage. The 80/10/10 is the most popular. There are only a few who provide 80/15/5, and 80/20/0. The three numbers represents the percentage of first mortgage, second mortgage, and down payment. For example, the 80/10/10 means eighty percent first mortgage, ten percent second mortgage, and ten percent down payment.
The Advantages of Piggyback Second Mortgage
The demand for piggyback second mortgage increased lately. There are a few reasons. The monthly mortgage payment costs less than a mortgage with PMI. The PMI premium varies on different states and situation. The PMI protects the mortgage lender in case of default on mortgage payment. However, the PMI has no benefit at all to the home buyer.
The interest on first and second mortgage are tax deductible from the time being. Mortgage interests are actually one of the important tax deductions for home owners. In fact, some homeowners elect not to pay off mortgage early for tax purposes.
The home buyer avoids the higher interest for Jumbo Mortgage Loan. Every year, the government sets conventional mortgage limit for purchase. If the mortgage exceeds the conventional mortgage limit for purchase, the mortgage lenders considers the mortgage application as Jumbo Mortgage Loan. Since the Jumbo Mortgage Loan offer higher risk to mortgage lenders, the mortgage lenders give higher interest rate on Jumbo Mortgage Loan.
The Disadvantages of Piggyback Second Mortgage
The house prices goes up or down. As the house prices goes up, the equity on the house grows as well. When the home equity goes up to twenty two percent, the home owner can cancel the PMI. The Homeowners Protection Act of 1998 requires the removal of PMI on loans made after July 29, 1999 after the homeowners pay down twenty two percent of equity.
Mortgage Lenders made Piggyback Second Mortgage more difficult to acquire than traditional mortgage. To qualify for this mortgage, the home buyer needs 680 Fair, Isaac, & Co (FICO) score. The FICO score measures the individual record in using credit.
Second mortgage comes with its own costs. The home buyer pays the same kind of costs as the first mortgage. Furthermore, the home buyer pays the same penalties on mortgage payment default.
The final verdict on Piggyback Second Mortgage
The Piggyback Second Mortgage benefits the home buyers, but the second mortgage requires some crunching on numbers. With this second mortgage, the home buyers pay less mortgage payment, and income tax. The PMI providers are feeling the pinch on loss business. In the future, PMI could be a tax deductible as well. The House Resolution 3098 and Senate Bill 132 (which are currently on pending) allow deducting the PMI on income tax.
A Jumbo Mortgage Loan is a mortgage which surpasses the conventional loan limits. The congress sets the conventional loan limit for purchase every year. Last 2005, the conventional loan limit was set to $357,650. As of 2006, the conventional loan limit was set to $417,000.
The Fannie Mae and Freddie Mac which are two federal chartered organizations purchases mortgage from mortgage originators. Then, Fannie Mae and Freddie Mac transform the mortgage to securities, and sell the securities to investors. The funds from sold securities are invested for new mortgages. And, the cycle goes over and over. This cycle provides a continuous flow of affordable funds.
Since the Jumbo Mortgage Loan is higher risk for mortgage lenders, the mortgage lenders give a slightly higher interest rate on Jumbo Mortgage Loan. Usually, the real estate agents find the luxury real estate property harder to sell.
Lately, the house prices shoots up to the roof. So, the demand for Jumbo Mortgage Loan shoots up as well. That is why the conventional loan limit shoots up two years in a row.
Mortgage Lenders requires higher down payment with Jumbo Mortgage Loan. There are no down payments permitted of any sort. Furthermore, the down payment for jumbo mortgage loan requires five percent more than conventional mortgage loan.
Fortunately, the mortgage lenders now offers longer mortgage. Many borrowers opt for 40 year mortgage or 50 year mortgage to bring down the mortgage payment. The Longer mortgage lowers the mortgage monthly payment.
Another, the borrowers use interest only mortgage to bring down the mortgage payment. In interest only mortgage, the borrower pays enough to pay off the interest. Thereby, the amount owe stays the same until the end of interest only mortgage. Interest Only Mortgage does not last forever. Sooner or later, the borrower pays off the mortgage.
The stated income and balloon rate jumbo mortgage loan are also popular. The stated income cost less to the borrower. And, any borrower with excellent credit can apply for the mortgage loan. Thus, there is no need to verify income.
As for balloon rate jumbo mortgage loan, the borrower pays equal amounts on each period. At the end, the borrower pays lump sum payment to pay off the mortgage.
In finding for jumbo mortgage loan, the borrower must compare interest rate from a variety of mortgage lenders. Then, the borrower evaluates his financial situation and loan needs. After, the borrower looks for trusted mortgage broker thru friends, family, classified ads, business directory, and more. Next, the borrower checks if he needs to pre-qualify for the loan. Finally, the borrower applies and completes the application.
The CashBack Mortgage puts money or cash to the pocket or bank account of the mortgagor or borrower whenever the mortgagor or borrower takes on a mortgage. The mortgagor or borrower gets a certain percentage back on the amount of mortgage. And, the money is free to spend on vacation, home improvements, investments, closing costs, moving costs, furniture, appliances, or other expenses.
I know what you are thinking. It sounds too good to be true. On the contrary, the mortgage lenders effectively use the CashBack Mortgage as a marketing tool. An extra money or cash just lures many borrowers.
Usually, the mortgage lenders gives 4%, 5%, or 6% cash back to mortgagor or borrower. To calculate the CashBack on Mortgage, you simply multiply the total amount of mortgage by the percentage of the CashBack Mortgage. For example, the borrower took a $250,000 with a 5% CashBack rate. The borrower sends $18,750 to their bank account.
The mortgage lenders approves up to 95% of the value of the property. That means the borrower pays at least 5% down payment.
Depending on the terms and conditions of the mortgage, the interest rate on a CashBack Mortgage may be slightly higher. For example, the mortgagor or borrower pays 5% interest rate without CashBack, or 6.5% interest rate with CashBack. For example, the borrower took a $250,000 mortgage amount, and 30 year mortgage. The borrower pays $1,342.05 mortgage monthly payment without CashBack, while the borrower pays $1,580.17 with CashBack. This may raise a red flag. Hold on to your horses. Suppose the borrower took 3 year mortgage term. After the 3 year mortgage term, the borrower paid a total of $48,313.80 without CashBack, or $56,886.12 with CashBack. The borrower pays an extra $8,575.32. With a 5% CashBack rate, it is still advantageous for the borrower. The $18,750.00 CashBack is greater than $8,575.32 extra payment on CashBack Mortgage.
Some mortgage lenders offer higher CashBack rate on longer mortgage term. For example, 4% CashBack rate on 3 year mortgage term, 5% CashBack rate on 4 year mortgage term, 6% CashBack rate on 5 year mortgage term, and so on.
The cash from CashBack Mortgage can also pay off the mortgage early. Basically, the principal goes down faster with any form of extra payment. The borrower can wish to pay extra on mortgage payment. As long as the extra payment does not exceed the allowable amount from the term and conditions of the mortgage, the borrower pays nothing on penalty.
The CashBack Mortgage is worth considering. Especially, you are a bit short of cash. This mortgage option may be advantageous. When you are shopping for the best CashBack Mortgage, the borrowers need to compare the mortgage term, CashBack rate, down payment, and interest rate.
Recently, the 50 year mortgage enters the market with a bang. It all started on San Bernardino of Southern California. Now, a handful of mortgage lenders offer this mortgage option. It is just a few months after the re-incarnation of 40 year mortgage. The 40 year mortgage debuts around the 1980s.
Due the soaring house prices, there were demands for longer mortgage. The house prices went up so high at Southern California. Consequently, the high house prices stop the American dream. We all want to own something called home in our lifetime. So, the cash-strapped home buyer wants to opt for longer mortgage. In fact, mortgage lenders get tons of phone enquiries about 50 year mortgage.
The 50 year mortgage provides another alternative to interest only mortgage, and adjustable rate mortgage. During the high house prices time, the cash-strapped home buyers opt for interest only mortgage, or adjustable rate mortgage. Naturally, the mortgage payment is lower like the interest only mortgage, or adjustable rate mortgage.
In interest only mortgage, the home owner only pays the interest. The principal stays the same thru out the life of the mortgage. In adjustable rate mortgage, the home owner pays same mortgage payment on a regular basis. Some portion of adjustable rate mortgage payment goes to pay out the principal. In some instances, adjustable rate mortgage payment does not cover payment on principal. This is more commonly known as negative amortization. This happens when the interest rate goes up.
The home owners still gains home equity. This is the main advantage of 50 year mortgage over the interest only mortgage and adjustable rate mortgage. However, the home owner gains more home equity faster with shorter term mortgage. Not to mention, the home owner pays more interest at the maturity of the mortgage.
Mortgage lenders actually prefer a shorter mortgage like 15 year mortgage. Generally, the longer term mortgage has more chance that the home owner will be in financial trouble. Fifty percent of the first-time home buyers are on 30 years old or older. The mortgage matures around at the age of 80 years old. That is long after the normal retirement age.
50 year mortgage is riskier type of mortgage to mortgage lenders. So, the mortgage lenders would usually charge a higher interest rate. Even though the mortgage lenders charges higher interest rate, the mortgage payments are actually lower than shorter term mortgage.
The home buyers can opt to buy higher priced home with 50 year mortgage. Or, the home buyers can save or invest the money from savings of the lower mortgage payments. This may be a better idea for unstable house prices when there is a chance for homes to depreciate.
Tags: morgage calculators, morgage calculator, morgages_, morgages, morgage, mortgage claculator, mortgage calcutator, mortgage caculator
Read about articles, facts, real-life stories, resources, and tutorial on mortgage and real estate.