80-10-10 Mortgages

What does 80-10-10 mean?  The 80 stands for an 80% First Mortgage;  the 10 stands for 10% Second Mortgage and the last 10 stands for the 10% down payment from the consumer.  This is done quite simply to avoid PMI (Private Mortgage Insurance).   Banks typically require 20% down from someone when purchasing a home… the problem is that as homes became more expensive, it becomes unrealistic for some to come up with that type of cash.  The 80-10-10 is a way to take advantage of low Conventional 30 year fixed rates without PMI.  The second mortgage is typically held at the bank and usually has a 1-3-5 or 7 year lock rate.  This only works (in my mind) if you can aggressively pay off the 10% second.  Ideally, this second has a 15 year (or even 10 year) amortization is best to gain the most EQUITY on your homestead.

First off… I do think PMI has its place… you are able to get a very low rate on your ENTIRE mortgage balance and don’t have to worry about rate fluctuations with a second mortgage.  For someone who is looking to ONLY pay the minimum payment… going with a 90% LTV (including PMI) is probably the way to go.  Example:  $200,000 purchase… 90% LTV with PMI = $180,000 mortgage at 5% 30 year fixed rate (subject to change… 2/12/09 rates) = payment of P+I = $970 + PMI of $85 for a total payment of $1,055.  Balance after 5 years is $165,000.  To eliminate PMI, one would have to submit a request to the mortgage company, pay for a new appraisal and potential processing fee for a total cost of $300 – $500 total to eliminate PMI down the road.

The example of the 80-10-10… $200,000 purchase.  $160,000 First mortgage (80%) 5 % 30 year fixed (rates subject to change… 2/12/09 rates) = payment of $860.  Second Mortgage (10%) of $20,000 at 6% 3 year term with payment of $195 (12 year amortization) and the consumer would put in the additional $20,000 to purchase the home.  Total payment is $1,055.  The key is in 5 years!  The balance of the first mortgage would be $146,850 while the balance of the second loan is down to $13,370… “for a total amount owed on their home of $160,000.  If the consumer could have paid $250 per month on their second… they would have paid it down to $9,530 in 5 years (or additional equity of approximately $4,000).  This plan only works when the consumer is aggressive in paying down that second mortgage.  We have interest rate risk involved in that second mortgage; if the balance after the initial lock period is high… you could see 7% – 8% or even 10% down the road making this a bad decision.  By reducing the balance of the second mortgage quickly…rate fluctuations won’t matter as much.

Post a Comment

Your email is kept private. Required fields are marked *


Scam Alert: Uber Data Breach

Wednesday, January 10, 2018

SCAM ALERT: Uber suffered a data breach a year ago, and the address and email information of 57 million people were stolen. Uber paid off the hackers who then reportedly deleted the data, but that cannot be confirmed. Watch out for phishing emails related to this Uber data theft, for instance that your “Uber account [...]

Nicolet National Bank’s Personal Bankers Focus on Customer Needs

Wednesday, January 10, 2018

Simplifying Processes Gives Nicolet Bank a Hometown Feel Nicolet National Bank’s personal bankers provide the link between good, old-fashioned hometown banking and the array of products and technological services available in today’s financial world. It is this focus on individualized service that creates long-lasting relationships between personal bankers and their customers. “We believe exceptional customer [...]


Business Pulse - Cybersecurity has emerged as a major issue for CEOs

Monday, July 27, 2015

CEOs Express Concern about the Cybersecurity of their Business. Read the full report here. Business Pulse – JUNE 2015 EXECUTIVE SUMMARY CYBERSECURITY  

Nicolet Bankshares, Inc. 2nd Quarter 2015 Earnings Release

Tuesday, July 21, 2015

Nicolet Bankshares, Inc. (OTCQB: NCBS) earnings release for 2nd quarter 2015. 2Q15 Earnings Release

How to Ensure a Good Credit Score

Wednesday, July 8, 2015

First, let’s understand how your credit score is determined. Your credit score is broken down into five categories weighted accordingly: Payment history = 35% Total amount owed = 30% Length of credit history = 15% New credit = 10% Type of credit in use = 10% MAKE YOUR PAYMENTS ON TIME. This is the most [...]


Font Size