Remember the good-old-days of using a second loan to eliminate mortgage insurance? If you have sought out home financing for a purchase or refinance within the last seven years you may not. That’s because in our current lending environment anyone with less than 20% down must pay a monthly mortgage insurance premium. If you don’t know by now mortgage insurance insures the lender against losses in case of borrower default and in the pre-housing-bust era that ended in 2007 people seeking a mortgage with less than 20% down for a purchase (or 20% equity for a refinance) would obtain a second mortgage to avoid paying a monthly mortgage insurance premium.
As the market shifted in the middle of 2007 and lenders tightened guidelines mortgage insurance became the norm. Until now. Second loans are making a come back and we now have the ability to finance a purchase up to 90% financing and a refinance up to 85%. See the table below for an example of what a purchase with one loan with mortgage insurance looks like compared to a purchase with two loans.
|One loan w/ Mortgage Insurance||Two Loans|
|1st loan amount||$450,000.00||$400,000.00|
|2nd loan amount||n/a||$50,000.00|
|1st loan payment||$2,149.00||$2,149.00|
|2nd loan payment||n/a||*$167|
|Total monthly payment||$2,408.00||$2,316.00|
|*fully tax deductible|
The two-loan option not only gives you increased purchase power and/or lower monthly payment but it also maximizes your mortgage-interest tax deduction. Mortgage insurance is not currently tax deductible.