Mortgage lenders generally require that buyers with a down payment of less than 20 percent of the purchase price must acquire private mortgage insurance, or PMI. These policies protect the lender in case of a default on the loan. PMI is temporary, lasting only until enough is paid in principal to reach the 20 percent mark. The PMI on a home in the amount of $250,000 can be around $100 a month however, so avoiding PMI may be worth your while.
There is no PMI with second mortgages when it is used to cover the missing down payment on the property. The buyer borrows 80 percent of the loan with a first mortgage at a market rate. The second mortgage, or piggy-back mortgage which covers the remaining 20 percent, is at a much higher rate however. So although you may eliminate the PMI, the costs of the second may exceed what you will pay in PMI premiums unless you are able to refinance the 2nd mortgage when your home value increases. You may even be able to refinance both loans when the home value goes up and if interest rates go down you can lower your payments.
The danger of taking out a second mortgage to cover the down payment is that there is 100% financing and the home will gain equity much more slowly. This will make getting home equity loans or an equity line of credit unlikely unless the property happens to be in a hot market. If it’s in a market that is losing value it could make selling the house a real hardship. “Homeowners who are upside down on their mortgages when they sell will have to find the money to pay the difference between what they owe and what the house sells for with their own savings,” says Norma Garcia, a senior attorney with consumer-watchdog group Consumers Union in San Francisco.
The best course of action will be to shop around and crunch the numbers. You may be able to get your mortgage insurance at a lower rate or even get a PMI policy with payments that automatically stop after five years if all mortgage payments are made on time.
To learn more about no equity loan options, please check out 125 Second Mortgage. If you need more useful tips about Second Mortgages for Debt Consolidation, please visit BD Nationwide Mortgage online and get the best home equity programs and Second Mortgage Rates. |
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