SECOND MORTGAGES

Michael Holigan: Tom Conti and family wanted a new house, but they didn't want to pay every month for Private Mortgage Insurance. P.M.I. protects the lenders investment, but it can be waved if a buyer has 20% to put down when buying a home. Tom did what more and more home owners are doing, he took out a second mortgage to make a larger down payment.

Tom Conti: It was an 80/10/10. So you had an 80% on your first mortgage, which allows you to put down 10% and the other 10% was a second mortgage. So essentially, according to the lender, the first lender, you had 20% down.

M.H.: A second mortgage can also be used to pay closing costs, or to get into an assumable loan. Since they are riskier to the lender than a first lien, they normally carry a higher interest rate. The length of the loan is normally 15 years or less and it's based on a loan-to-value ratio. Say you have $15,000 to put down on a $125,000 home. You still need another $10,000 to avoid Private Mortgage Insurance. Some investors will give you a first mortgage for an amount up to $100,000, allow you to put your $15,000 down and obtain a second mortgage for $10,000. The total payments for the first and second mortgages should be about the same as the first mortgage plus P.M.I.. However, the real advantage of a second mortgage is that the interest on it is tax deductible. Your payments for P.M.I. are not.

T.C.: I would have to say though, on the mortgage type that I took out, you're probably going to be looking at a difference of $1,000, $2,000 a year net. Better than I would of had to pay Uncle Sam, so it's a couple of thousand dollars more in my pocket, and with a family of six, a couple of thousand dollars is going to go a long way.

M.H.: There's another popular version of a second mortgage called a Home Equity Loan. Just as it sounds, you borrow against the value in your home. A lot of people use it to add on an addition or put their kids through college.

 

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Episode 43 1996 - 97 Season

| Ragging Off | Stud Marker | Xeriscaping | Final Walk-through | Pro-Measure Plus | Excess Humidity | Detectors | Paint Protectors | Second Mortgages |

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