| An 80 20 mortgage is another way to get 100% | | | | fixed rate, variable rate or interest only product. Any |
| financing on a house purchase. This article will discuss | | | | mortgage that is more than 80% of the value of the |
| how 80 20 mortgages work, some of the benefits of | | | | home requires a private mortgage insurance (PMI). |
| this type of mortgage and some things to watch out | | | | Thus by getting the extra 20% of the cost of the |
| for. | | | | house, the person doesn't have to purchase PMI. The |
| The 80 20 loan is effectively two loans. The first loan | | | | 20% part of the loan, sometimes referred to as a |
| is for 80% of the value of the house you are planning | | | | 'piggyback' loan, will be a few percentage points above |
| to buy. The second loan is for 20% of the value of the | | | | the prime rate and will adjust with the prime rate. The |
| purchase price. Thus by using the two 80 20 loans you | | | | 80 20 mortgage rate varies according to the company |
| have the total sale price of the house without having | | | | that offers the loan and the applicants financial |
| to find any lump sum down payment. | | | | circumstances. It is advisable to shop around as these |
| This can be useful to people that have a good credit | | | | rates can vary. |
| history and regular income but do not have a large | | | | The obvious advantage of this type of mortgage is |
| amount of money saved up to put a deposit down on | | | | that you don't need to find a large deposit of money to |
| a house. It might include young people with good | | | | buy a house. You can purchase a house with virtually |
| regular income through a job that have not had time to | | | | no money down (closing costs still have to be found |
| save up a deposit but see house prices rising and think | | | | by the purchaser). |
| they will be priced out of the market. Typically they are | | | | The main downside of the mortgage is that you have |
| renting an apartment or house and the amount they | | | | effectively borrowed all the money to purchase the |
| pay on the rent will be comparable to the mortgage | | | | house so if the value of the house was to fall you |
| they will have with an 80 20 mortgage. Another group | | | | would be in negative equity. You would owe more |
| of people that would find this type of mortgage useful | | | | money than the house was actually worth. If the |
| would be people investing in a second house but did | | | | housing market was particularly volatile and the values |
| not have any capital available because it was invested | | | | of houses were dropping you could find yourself in |
| in other things. | | | | debt. Traditional mortgages generally require a 20% |
| 80 20 mortgages work as such : 80% of the | | | | deposit to protect their investment in you and to |
| mortgage will be a traditional loan. It can be either a | | | | protect you from the vagaries of the housing market. |