Q:

What is an 80/20 mortgage loan?

A:

Quick Answer

Technically, an 80/20 mortgage loan is two loans. The first loan is for 80 percent of the mortgage, and the second loan is for the remaining 20 percent of the price of a home. An 80/20 mortgage loan can allow a home buyer to save money at the beginning of the loan term as well as throughout its term.

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What is an 80/20 mortgage loan?
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Full Answer

When a home buyer enters into an 80/20 mortgage loan, he is required to make two monthly mortgage payments. Those who already have 20 percent to put down on a mortgage might not find an 80/20 loan advantageous. Typically an 80/20 loan works out best for those who do not have 20 percent to put down on a loan and would be required to pay private mortgage insurance. This insurance is required by lenders so they can recoup the loss for any homeowners who default on their payments.

Many see 80/20 loans as being riskier than traditional mortgage loans, so lenders require borrowers to have a higher credit score than an 80 percent loan traditionally requires. Because the 20 percent loans often require a variable interest rate instead of fixed rates, the amount that borrowers pay each month tends to vary.


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