Question:

What is an 80/15/5 mortgage loan?

Answer:

The 80/15/5 mortgage loan has the same idea behind as the 80/10/10 loan. They are all a combination of a first and second mortgage with the purpose to get a minimum down payment, and lower monthly installment avoiding costly PMIs. The 80/15/5 and the alike are also called piggyback loans. A second mortgage (also called second trust) is again secured against your house, but comes after the first mortgage. Even though rates on seconds come higher than on PMIs, they will be tax-deductible.

With the 80/15/5 mortgage you are able to take a first mortgage of 80 percent, 15 percent second mortgage or HELOC, whichever comes cheaper, and pay some 5 percent cash. All your monthly mortgage payment should be tax deductible, compared to when using PMI.

Some Good-to-Know 80/15/5 Loan Features

As a whole, your debt ratio for this type of loan should not exceed 45 percent of your income before tax. Also, insurance premiums for loans originated in 2007 are tax-deductible. Whether they will continue to be so is yet unclear. If you have signed for a PMI, you should know that paying premiums ahead as it is always recommended is not likely to work out. However, always consult your tax professional before making a decision between a piggyback and a single mortgage.

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