Question: > I have a similar mortgage, except the 15% piece is a 1-5 ARM. We’ve > > almost paid off the smaller loan by making larger payments and expect > > to have it completely paid off in less than 1 year from now. At that > > point, we will have 35% equity in our home and will be able to apply > > what we were paying on the smaller loan, to the larger loan. I know > > of no conventional mortgage that can give such a quick return! And > > we’ve paid no PMI.
> > Go for it!
> The unusual aspect of the loan originally described is that the second > is at such a low rate…to get such a low rate at more than 80% LTV > you usually need PMI…
> The only small downside I can see in the original scenario is the fact > that they have to have an escrow account…but that is minor compared > to everything else…I wish I could have found a no PMI second for the > same rate as the first…that’s phenomenal, and about as close to a > “free lunch” as you’re going to find…
> Other than that, we’re doing the same thing, and aggressively paying > down the second. Our choice was simple: We either pay an extra $100 > per month in deductible interest (about $65 after tax consequences) or > pay nearly $150 in non-deductible PMI…
Answer: Nobody even mentioned the fact that PMI premiums are not tax deductible, mortgage interest is. Not only can you buy a home this way, but you can refinance a traditional 10% down loan (with PMI) to this format (without). You can borrow up to 80% of appraised value on a new first mortgage at market rates (low 7’s today) and the remainder on a 2nd with rates averaging in the 9’s.
If you are interested in a comparison, e.mail me with your current loan specifics (rate, estimated balance & payment breakdown) and estimated property value and I’ll e.mail you the results.
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