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LACKING A 20% DOWNPAYMENT? THERE'S HELP
Posted by V.K. [Mel] Melhado P.A. on Wednesday, December 27th, 2006 at 4:23pm.People who have been cash-strapped and yet are eager to purchase a home, often have turned to loans referred to as ‘piggyback loans’. With the rise in the short-term interest rates, it doesn’t make sense and those loans are certainly much less appealing. Many borrowers are turning back to the private mortgage arena as an alternative. With the new federal legislation allowing insurance premiums to become tax deducible, this gives borrowers even more incentive. That legislation is in addition to the deductions that homeowners can already take regarding mortgage interest they pay..
Interest rates will determine whether a piggyback loan or mortgage insurance will make the most sense. With low rates, the piggyback loan makes more sense, while, on the other hand, higher rates will favor mortgage insurance. When the borrower takes out a piggyback loan, it creates two payments, instead of one with mortgage insurance. With the piggyback loan, the borrower will take out a mortgage for 80% of a home’s valuation and finance the balance with a secondary home equity of line of credit.
There are factors to consider when borrowers cannot come up with the traditional 20% downpayment and the options should be vigorously compared. Again, piggyback loans are the most attractive when interest rates are low. Also mortgage insurance premiums can now be deducted on the 2007 tax return, if a contract is taken out in 2007. You can eliminate mortgage insurance if your mortgage balance falls below 80% of the total home value. To weigh your options and calculate the differences, go to www.mtgprofessor.com, where you will find calculators that will be of help.
V.K. [Mel] Melhado PA
Downing-Frye Realty, Inc.
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