Looking back at the history of home prices, one thing is clear - over time, home prices continue to climb. Nowadays, many people are struggling to find the necessary deposit to buy a home. They can afford the mortgage repayments okay, but paying rent, bills and other day-to-day expenses can make it extremely difficult to save a deposit.
As a result, more people are looking to borrow 100 percent of the cost of their home. That\'s where an 80 20 mortgage loan can come in handy. With an 80 20 mortgage loan, the home buyer actually takes out two loans. The first loan is for 80% of the purchase price, with, not surprisingly, the 20% loan covering the remaining 20% of the purchase price. The borrower still needs to have enough funds to cover any closing costs.
The obvious advantage of an 80 20 mortgage loan is that you don\'t need a down payment. So it can be great for people with the ability to make mortgage repayments, but for whatever reason may struggle to save up a deposit. It can also be used if you want to keep your savings intact, rather than using them to buy a home.
80 20 loans are very popular with young professionals. Often these buyers have good jobs and steady incomes, but paying off college debts has made it difficult for them to save a substantial sum of money.
Renters may also find an 80 20 mortgage loan useful. It often happens that a renter is paying almost as much in rent as they would pay for a mortgage payment, but for that very reason their ability to save is limited. With an 80 20 loan they can put their rent towards buying their own home, instead of giving it to the landlord.
Another advantage of an 80 20 mortgage loan, which isn\'t quite as obvious, is that you can avoid paying private mortgage insurance. Because your main mortgage is only 80%, you usually won\'t be required to lower the lender\'s risk by taking out insurance. For bigger loans, this can mean a substantial saving.
How Does It Work?
Basically, the 80% loan is a standard home loan. You borrow 80% of the purchase price (assuming that the price isn\'t over inflated), and can choose the style of loan you want - for example, an adjustable rate mortgage. So this part of an 80 20 mortgage loan is familiar to most people.
The 20% loan \piggybacks\ onto the 80% mortgage. You usually get this 20% loan through the same lender, however because the lender\'s risk is higher on this part of the total loan, you will be paying higher interest rates. There may also be some other fees or conditions that make it a little less attractive than a standard loan. However, in most cases, when you combine the two repayment figures, you will still end up paying less than if you\'d taken out 100% finance and paid private mortgage insurance. So it can be a worthwhile option t pursue.
You might need to shop around a little to get the right combination of loans. For example, some lenders will want the loans to both be at a fixed rate of interest for a set period. Others may allow one or both to be adjustable rate mortgages. So if you want certainty about your payments for a reasonable period of time, you\'ll need to find a lender that offers fixed rates. If you\'re comfortable with the possibility of your payments going up, you may be better looking for adjustable rate mortgages, as initially they are usually cheaper than fixed rate mortgages. You may even be able to find a lender who will allow some portion of the loans to be interest only for a set period, which can reduce your repayments even further.
As with all mortgages, it\'s important to think about your financial situation first, and be totally honest with yourself about you can afford. Take your time, shop around, and always make sure you read the details of any mortgage before you sign it. Even better, get a legal professional to read it and explain it to you.
With an 80 20 mortgage loan, you could be in your own home a lot sooner than you thought - so check them out and see if you can buy your own home today!
Get more helpful home loan tips and hints here Home Loan Zone Central
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