Instead
of borrowing 90% of the purchase price of the home which would result in
a principal and interest payment (P.I.) plus mortgage insurance (PMI), we
split the mortgage and offer a first mortgage of 80% of the purchase price
combined with a second mortgage of 10% of the purchase price. This provides
the 90% financing, but second mortgages do not require mortgage insurance.
The other benefit is a possible reduction in interest. The split mortgage
could actually save you money by reducing the interest paid on the loans.
This occurs because the second mortgage is only amortized for 15 years not
30 years. More of your payment is therefore applied to principal each month,
reducing the interest paid.
Example:
Purchase price: $150,000.00
1st mortgage 90% $135,000.00 7.00% 30 years $898.16 PI + $67.50 PMI = $965.66
Interest: $212,637
1st mortgage 80% $120,000.00 7.00% 30 years $798.36 PI + 0 PMI = $798.36
Interest: $167,410
2nd mortgage 10% $ 15,000.00 9.00% 15 years $152.14 PI + 0 PMI = $152.14
Interest: $
12,385
Total: 90% $135,000.00 Total: $950.50
Interest: $179,795
This example
clearly illustrates the benefits of the split mortgage technique. This type
of financing produced a lower combined payment, no mortgage insurance and
less interest. Since neither of these mortgages have a prepayment penalty,
the borrower can pay extra principal on the second mortgage resulting in
a faster payoff and even greater interest savings. Once that second mortgage
is paid off, only the first mortgage exists so the monthly debt is also reduced.
Interest rates are subject to change daily according to market conditions.
Please call for current rates and terms. All calculations will be done according
to individual circumstances to determine if the split mortgage technique
will save you money. We recommend you review our conclusions with your financial
advisor or attorney to substantiate our finding before you proceed.
An 80/15/5 is also available reducing the down payment requirement to only
5% of the purchase price. Because of the lower down payment, risk is increased
so the interest rate is higher. Call for figures on this type of financing.
DISCLAIMER: The calculations
performed on this page are mathematical estimates.
There is NO WARRANTY, expressed or implied, for the accuracy of this information
or
it's applicability to your financial situation. Please consult your
own financial advisor
before making any financial decisions. |
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