Smart Money
80/15/5
Trever Peterson
June 1999
An 80-15-5 Program is a fixed rate program designed to help Borrower's purchase a home with as little as 5% down while avoiding Mortgage Insurance. Not only does it save you money, it also maximizes your tax benefits. Example: Borrowers wish to purchase a home for $350,000 with a down payment of $17,500.
Problem: Most Lenders will provide a first mortgage of $332,500 with a Mortgage Insurance payment (which is not tax deductible) of approximately $216 per month.
Solution: 80-15-5 program is two loans for the price of one. Under this same scenario, we would issue a first mortgage of $266,000 with a second mortgage of $49,875 and eliminate the additional cost of Mortgage Insurance. All borrowers have a real aversion to paying mortgage insurance. Justifiably so, as mortgage insurance is costly, involves a second Approval process, and is not tax deductible
Another great benefit is after the second is paid off, usually (5-15 years) you are left with only one payment. This can be real helpful if you are planning to retire or take on additional debt in the near future, i.e.., college expenses.
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5% Down Payment
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NO MORTGAGE INSURANCE
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80/15/5 INVOLVES A PURCHASE MONEY SECOND
(80% FIRST LIEN, 15% SECOND LIEN, 5% DOWN)
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PROGRAM COMPARISON
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Option 1
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Option 2
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95% LTV
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80/15/5 CLTV
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Sales Price |
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$200,000 |
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$200,000 |
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1st Mortgage |
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$190,000 |
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$160,000 |
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2nd Mortgage |
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N/A |
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$30,000 |
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Monthly Mortgage Insurance |
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$123.50 |
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-0- |
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P:I Payment 1st |
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$1361.18 |
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$1146.26 |
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P:I Payment 2nd |
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N/A |
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$ 317.81 |
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Monthly Payment |
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$1484.68 |
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$1464.07 |
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Balance After 15 yrs. |
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$146,303 |
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$123,203 |
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Payment After 15 yrs. |
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$1361.18 |
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$1146.26 |
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*Taxes and insurance not included in payment calculations*
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BENEFITS TO BORROWER
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- Enhanced tax benefits, interest on 2nd is 100% tax deductible, mortgage
insurance is not.
- Allows for expanded ratios and loosens underwriting.
- Greater equity buildup!
- Saves on closing costs!
- Allows borrowers to manage their own escrow's.
- No prepayment penalty on 1st or 2nd lien.
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