Piggyback 80/20 loans vs. 100% finance with PMI?

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I know i should save $ for a down and have been but something always come up with kids and it’s VERY HARD so pleeeease, no lectures *smile*:-)))
. Here’s my question. I was told I am eligible for the piggyback 80/20 loan (I have bad credit I am fixing)but the 20% loan up can have 10% interest! I’ve done some calculating and if this is the case I’ll be paying about $ 2300 for the 1st mortgage and $ 800 on the 2nd and basically would have negative equity by the time I finally move in. Am I right? Should I just wait to save at least 3% for the SONYMA loan which gives you 6.7% interest? PS-my dad has great credit and he said he would co-sign.

What about a 100% loan with PMI instead of a piggyback loan? What would the monthly mortgage be guesstimating the home is $ 430K?

Your advice is heartily appreciated. With the interest rate on the piggyback loan after 30 years I would have paid over a million dollars on a $ 400K home. Am I calculating this wrong?

  1. Reply
    February 10, 2011 at 6:27 am

    Well I can tell you form my experience that the only good think that a 80/20 is good for is a temporary fix. The 20% loan is usually going to be a loan that you will only pay interest on. So ultimately you will eventually have to start making contributions to the principle (usually having to have it payed off by 15 years). The only people that I would recommend this type of loan to would be people who are looking at the property as an investment and plan to pay the equity loan (20% loan) off relatively quickly. Another downside to this type of loan is that generally the equity loan is usually a variable interest rate (think of the 80’s when the average loan was 14% interest).

    I would say that your best plan would be to have your father cosign for you or better yet see if he can take a personal loan out for you to cover the down payment and pay him back monthly while only having one mortgage.

  2. Reply
    February 10, 2011 at 6:43 am

    I am not to firmiliar with the PMI loan but on the 80/20 loan the 20% interest is tax deductable so you can claim it on your taxes. When we were buying our home we ended up getting the 80/20 due to that reason and other factors. It is just what suited us better. The one thing that the finance company did tell us was to pay more on the mortgages so that we would not have to pay more than what the house was worth. For example our 20 mortgage is 314.51 they told us to pay more when we could and make sure to put down that the extra cash was going towards the principle not the interest. On our home we did not have negative equity either as long as the people around you care for there property and you do the same the equity either stays the same or goes up in most cases it goes up. If you do not want such a high payment the best choice for you would be to save for the 3% that you need. On any home mortgage you will be paying more than the house cost but pay the principle as quickly as you can to cut the interest down.

  3. Reply
    Bill R
    February 10, 2011 at 7:28 am

    an 80/20 loan bets paying PMI.
    WHY? because PMI is money u spend to protect your lender, not U.
    It doesn’t help your interest rate, it doesn’t help your principle. It is wasted money.

    That said, u have two choices
    find a house u can afford to put 20% down or have a plan to pay off the 20% ASAP since it will be a higher interest loan.

    Don’t do what most people do. Carry both forever. An 80/20 is a money managing tool just like an interest only loan. They were started for poeple who had lots of money that was currently tied up. When it became free they paid the loan off.

    Unfortunately, they are the cause of a lot of foreclosures today because they started issuing them to people without money.

    If you don’t manage your money, don’t do it.

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