2nd Mortgage to negate PMI Insurance More options
Q. I'm in the process of purchasing a new home, and I'm not going to able to put 20% down. I've spoke to 3 different mortgage houses, and each one has pitched this 80-15-5 home payment process. This is what I know today about this type of home payment. Please correct me if I'm wrong on any of these statements. 1. I won't have to carry PMI 2. I can claim the interest on each mortgage 3. I can get the house re-appraised in a five years, and potentially pay down the 2nd mortgage. 4. The 2nd mortgage is a balloon mortgage due after 15 yrs I've also read a few posts that talk about getting the 2nd mortgage lender to agree to subrogate the second in the event I want to refinance. I understand what subrogate means, but not in the context of what I need to get the 2nd mortgage lender to agree to. Any thoughts? Also is there anything else I need to know, or need to look out for when purchasing a house in this manner? Could some shed some light on these questions.
A. You should be able to re-appraise in 1 year if you want to. Can you only pay down 5%? If so, and you can afford to make 2 payments (a 1st and a 2nd) then do so since it's tax deductible and you build equity at the same time. But I wouldn't do the 2nd for more than 5 years. Any longer than that and you're paying too much interest. I've just bought a house for $221K. It appraised at $230. I paid down $25K (11% since I couldn't pay more than 15% and the PMI payment is the same whether I paid 11% or 14% down). In this area it should appreciate 4%+ per year so in one year it should re-appraise at $239K ($230K X 1.04%). I'll owe about $195K at that time so I'll have 18% equity and will just pay 2% more on my principal ($4,000) and then I can drop PMI. .