What Is A Combination Mortgage?

The combination mortgage loan is turning into a very attractive loan option

. This is because there are a number of key advantages that are placing these loans in a more favorable spot than the 30-year fixed mortgage. This is because there are a number of combinations within the loan that can fit virtually any financial situation.

Options

As it stands, the most popular combination loan is one called the 80/20 loan. This is actually two loans. The first is for 80% of the value of the home and the second is for the remaining 20% of the loan. With this type of loan there is no down payment, which makes this a great option for those who have no or limited money to put down as a down payment.

Another advantage of the 80/20 loan is that the borrower is able to avoid having to have private mortgage insurance. This is because private mortgage insurance is required on loans that are greater than 80% of the value of the home. With this loan, nothing is over 80%.

A third advantage is that both of the loans are tax deductable. By not having to pay private mortgage insurance and also getting the tax deduction, there are some significant savings for the homebuyer.

There are also other loan ratios available as well. For instance, you can get a 70/30 if the home is more expensive. This type of ratio is used when the price of the home may classify the 80% as a jumbo loan. Knocking it down to 70% can keep it out of that status.

There is also the 80/15/5, which means the homebuyer puts down a 5% down payment and then the two loans are 80% and 15%. Other options include the 80/10/10 and the 75/15/10. Usually the more expensive the home, the lower the loans and the higher the down payment in order to keep the mortgage premiums as low as possible.

The term

The usual term on combination loans is 30 years on the primary loan. The secondary loan can have a 15 or 30 year term. The interest rate for the second loan is usually around 2% more than the primary loan. A homebuyer also has the option to make the loans fixed or opt for an adjustable rate mortgage (ARM) on one or both of the loans. The monthly premium for the ARM may be lower if the rates are low, but you may want to refinance if the rates start to become too high.

You may be able to see why combination loans are becoming so popular. The options that are available as well as savings make them favorable. However, you will need to meet credit requirements and the debt to income ratio requirements of the financial institution you are borrowing from. You may wish to shop around in order to find the best rates and the best terms for a combination loan. That way you can save yourself as much money as possible.

by: Gen Wright

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