FHA 30-yr Fixed vs. 80/20 - Which Loan is better?

Question

Why?

30 yr fixed = 6.5%... PMI in the state of MN IS tax deductible.

80/20... 80 = 6% / 20 = 9% (Fixed) No PMI but still that higher interest rate just seems not necessary.

30 yr fixed = 6.5%... PMI in the state of MN IS tax deductible.

80/20... 80 = 6% / 20 = 9% (Fixed) No PMI but still that higher interest rate just seems not necessary.

Also, on an FHA (which is different than a conventional loan) PMI is NOT removable. Ever. That's the part that gets me. Even after you have 20% equity.

Answer 1

30 year fixed.

with an 80/20 the 20% loan will have horibble terms, it will have higher interest rate and probably more hidden fees, you are better off paying PMI for a few years, then get an apprasial to prove when you have 20% equity and your payments will go down (no PMI)

the other thing that sucks about an 80/20 is that usually its an ARM, the housing market is slow right now and there are thousands of people getting forclosed because they got ARM's thinking they could refi or cash out before their rates went up, but since the market cooled they have less equity than expected and they are either being forclosed or in many cases selling at a loss to savy investors.

I'd stay away from anything other than a traditional fixed rate loan right now, with the market cold and interest rates going up there is a ton of potential for problems with anything else.

Answer 2

If you qualify for a conventional loan, 9 times out of 10 you are probably better off with a conventional loan than an FHA. As for the rates you provided, the rates on the 80/20 will end up giving you a very comparable rate to the 30 year fixed (your loan amounts are important to know to figure out the exact blended rate based on the 2 loans). At a purchase price of 125k with the 1st being 100k at 6% and the 2nd being 25k at 9%, your blended rate is 6.6%, which is very comparable to the 6.5%. The 80/20 rate is extremely close and there will be no mortgage insurance. However, the mortgage insurance is tax deductible. Therefore, you must choose if you want to save now with your monthly payment or if you want the higher payment and get the extra tax deductions at the end of the year. I would suggest the 80/20 will probably be your best bet given the information you have provided here. Even though the 20% rate at 9% seems high to you, this is actually a very good rate for a 2nd mortgage being at 100% loan to value. That 2nd mortgage is extremely riskly to a bank when there is no equity in the home and that is why the rates on 2nd's are so much higher. Whatever you choose will not be a wrong decision as they are all very similar. Good luck and hope this helps.

Ps: Many times the 20% rate is not only fixed, but it can be for a lower term such as 15 or 20 years so that you can pay it off quicker. If you want a 30 year term on the 2nd most likely it will be a 15 year balloon, not a 5 year balloon, and the chances of you still being in this same mortgage situation in 15 years is highly unlikely. The average American sells or refinances every 4.6 years. Most 80/20's offer fixed rates on the 1st and 2nd mortgages. Check with your mortgage professional to be sure.

Answer 3

The vast majority of the time the 20% part of the 80/20 is a "balloon note". In about 5 years you will be forced to pay it off either by getting a new loan or whatever.

I am to consevrative to do that. Back in the 1980's my younger brother bought his first home on a 18% loan! In 5 years I doubt they will be that high-but why worry? I want my home to be the most worry free part of my life.

If in three or four years intrest rates have gone up and you want to sell your home the FHA loan will be easier for someone to qualify and assume. They just pay you the difference between the agreed sale price and the loan balance and qualify through your mortgage company.

Monthly payment wise the two loans for the first few years are very much the same thing.

Answer 4

80 20 Loan

Answer 5

FHA loans do not have PMI. A mortgage insurance premium (MIP) is charged and is normally rolled into the loan balance although you can pay it in cash at closing. The cost of the MIP is earned in full in the first 6 or 7 years of the loan, typically long before you'd hit 20% equity based upon the amortization schedule. If the loan is retired before that point you'll get a refund of the unearned premium from HUD a couple months after you close.

You should compare the monthly payment amounts and cash at closing requirements to see which of the 3 is the best for you.

Answer 6

If you're referring to an FHA loan with only 3% down or less, you will probably have to pay PMI-private Mtg insurance, which could add $50-100/month to mtg payment, (and is NOT deductible on your tax return like real estate taxes or mortgage interest,) depending on size of mortgage. The PMI is usually not required with a 20% down mortgage. Also, you'll have a bigger mortgage besides the PMI with the FHA - 97-100% of purchase price instead of 80%. It's

Answer 7

FHA 30 3 hundred and sixty 5 days fixed is extra suitable. once you have an 80/20 own loan you pays extra because of the fact the pastime on the 20 own loan is often lots larger, and pastime rather provides up. pastime is tax deductible besides

Answer 8

It depends on your entire budget. If you are planning to pay off the 20% loan in the immediate future you will be left with a smaller monthly payment at a lower interest rate. If you plan to keep both loans for the full 30 years go with the PMI. PMI can be removed when you reach 20% equity but you may need to keep it 2 years. Your total payment will be still high after the PMI but if the home appreciates you and you get an appraisal you have it removed.

Answer 9

give us some more information. interest rates, terms of the 80/20 etc

Answer 10

Do all those numbers you crunched, really matter? Isn't your main concern which scenario will deliver you a lower total payment? http://www.choicefinance.net/