Given that the cost of owning a home is increasingly getting more expensive, many people turn to mortgages in order to buy their homes. Some of them entirely depend on such loans to make their purchases.
One example of home loans where mortgage insurance is not included is the 80 20 mortgage loan. This type of mortgage enables the borrower to secure two loans. The initial part of an 80 20 mortgage loan involves 80% of the home's purchase price. The other part is 20% of the actual price of the home. The borrower needs to come up with the closing costs of this type of loan.
According to some experts, the 80 20 mortgage loan gives consumers the opportunity to purchase homes with no need of making any down payment. This is advantageous to those people who would not like to interfere with their savings in a bid to purchase a home.
Young professionals form a bigger percentage of the people who opt for 80 20 mortgage loans. These are usually individuals who hold good posts at work.
80 20 mortgage loans are a good alternative to those whose credit savings are good yet have not yet made enough savings to commit to such a purchase. This type of loan is also convenient for those who are renting where they live in. The costs of paying rent every month is in the same range as the cost of paying for a home. In many cases, renters often are not able to make sufficient savings to cater for the required down payment. Hence in an effort to buy their own homes, such people go for loans where they do not need to make a down payment, or at least make just a small payment.
However, in order for them to qualify for such loans, these people are required to give a private mortgage insurance. It is the 80 20 mortgage loan that does not need the PMI. Instead, an 80 20 loan backs up your initial loan by the issuance of a second mortgage. As had been stated, the first mortgage is 80% of the purchase price of the home. The second mortgage is 20% of the home's price, apart from the down payment.
Generally, the interest rate you will have to pay on the second loan is usually higher than what you pay on the first one. The 80 20 mortgage allows you to combine your payments, effectively affording lower payments. This type of loan has lower monthly payments than the one with a PMI.
Different lenders structure their 80 20 mortgage loan programs differently. The interest of the 80% of this type of loan may take various forms ie., fixed, adjustable, or even interest only rate.
Source: http://www.ArticlePros.com/author.php?Arek Zbikowski
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