80/20's? Read details?

Question

Hi again, loan experts. BTW, I've really appreciated all the many and various answers you've given and have learned so much. Sorry I can't just chose you all as best answers!

Anyways, the Lending Tree guy was trying to tell me to stay away from 80/20's because the interest rate on the "20" or second loan is never locked...meaning it can go up to 12% if the lender so decides. True? False?

Oops, correction...by locked I mean fixed

Thanks Kate, that makes good sense!

Answer 1

hey i used to work at LTL....
what he means is that they dont lock it until the closing date.
The 1st mortgage is locked in for 30, 45, 60, 90 days...but the 2nd is never locked until the day before or the day of closing. Normally, the rates on 2nd's are based on Prime Rate of 8.25% and can be much higher than that.

the FED can meet before your closing and raise/lower the fed funds rate....which in turn will raise/lower the prime rate.

If you received a HELOC then the rates will not be locked...and it is variable....it will change up/down whenever the FED meets

Answer 2

If you CAN put money down, you should. If not, and 80/20 could be the answer.

80/20 is, in fact, an 80% LTV (loan-to-value) first mortgage with a 20% LTV mortgage behind it. That brings you to 100% CLTV (combined loan-to-value) and is still an options in today's market, although they are a little harder to qualify for.

I don't want to trash Lending Tree, but I've never heard a good story about dealing with them. Hidden fees, long turn times, unfriendly agents....be really careful with them. A friend of mine got what he thought was a great deal, but when he went to sign the papers they were charging him through the nose using "hidden fees" that he didn't know about. Luckly, he walked away without signing.

That said, there are a lot of fixed-rate 2nd mortgages out there. The rates will be higher, but if you are borrowing 100% CLTV you are seen as a higher credit risk. I would be VERY careful with an adjustable 2nd - there are many, many more lenders offering a fixed 2nd at only 1% or so above the adjustable rate. Since your second is usually pretty small, the 1% increase wouldn't raise your monthly payment that much at all.

Lastly, the lender dosn't decide what an adjustment would be at whim - it's decided in the closing papers. It will spell out what the increase in rate would be, and how often it increases.

Be careful! If you don't understand something your rep is telling you, ask. If you aren't comfortable with the program, do not sign!

Good luck! :)

Answer 3

False. A 20 on an 80/20 means the 2nd mortgage accounts for 20% of the home's value. It can be a fixed or adjustable rate loan depending on what your credit and income qualify you for.

Lending Tree Guy probably qualified you for an adjustable rate second that's a home equity line of credit. The interest rate can rise up to 12% depending on the market, not on the lender's discretion. Your rate is determined by adding a predetermined amount, called a margin, to an index. An index is rate determined by financial markets and varies with market conditions. Home equity line of credits use the Prime Rate as an index. Currently, Prime is at 8.25% and could potentially rise if the Federal Reserve deems necessary. All indexes used in mortgage lending could potentially rise due to market conditions. This is why your 2nd mortgage rate could go up to 12%.

Your loan officer wants you to stay away from 80/20's because they've very difficult to get approved for given current market conditions. It's also not a wise idea to borrow up to your home's entire value because of the instability of real estate values. You're better off finding a home you that afford to put 20% down and take out a 30 year fixed mortgage however, this may not always be possible in some situations. Good luck!

Answer 4

Who the heck is still doing 80/20s? How much is the purchase price?? If it's within conforming loan limits (417K) you can get a 100% no MI loan from fannie mae/freddie mac.

Wall Street stopped buying "closed end seconds" (fixed rate) months ago before the market went to hell. The 2nd is probably an equity line which is tied to the prime rate. Rates are going to be coming down in the near future if anything so it might not be a bad idea. I just can' t believe anyone is still doing them.

ask the lending tree guy about a conforming loan. If you want to go that route (and your credit is good) just go to a local bank, like B of A or wells fargo. Probably less fees..

Answer 5

Using the word "never" makes the answer to your question: False.

If your 2nd loan has a fixed rate, the rate will not change.
If your 2nd loan has a variable rate, the rate CAN change.

So, get a fixed rate loan and the answer is "false."

Answer 6

True 80 / 20 s mean You put down 20% ,
You do Not borrow it .
Those where you borrow the 20% are called piggybacks and yesssss ,
Those fake 80 / 20 s will now have credit card % rates on the 2nd / piggybacked 20% .

Put a real 20% down , that is the path to avoiding bankruptcy !

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