Q. My mortgage broker is trying to convince us to do 80/20 financing. We’d get a fixed-rate 30-year loan for 80% of the money and an adjustable-rate home equity loan for the other 20%. Is that just better than paying for private mortgage insurance?

A. The 80/20 piggyback mortgage was a good option when a variable-rate home equity line of credit cost about 4%. But now it's close to 8.25%, and while it's not likely to go up anytime soon -- and could even go down a little -- variable rates are risky.

Since we don't know what kind of numbers you're looking at, it's difficult provide specifics. But you can go to our mortgage calculators and make some comparisons.

Start by figuring out what you would pay a month on an 80% loan for 30 years at whatever rate the lender was quoting, then figure out what you would pay on the 20% home equity loan for 10 years at  8.25% or whatever they were quoting.

Then see how much you'd pay if you took out a single loan for the entire amount, with an interest rate closer to 6.1%, which is what the average 30-year fixed-rate loan costs right now.

If you have less than 20% equity in your home, then you’ll have to pay PMI, which generally runs about 0.5% of your balance a year. So calculate how much that would be per month and add it onto your payment.

For many homebuyers, a single loan is now offering lower monthly payments.

Congress has also passed a bill that allows people making $100,000 or less to deduct PMI from their income tax, just like you would with interest payments. Experts say that will save the typical homeowner $300 to $500 a year.

That new deduction went into effect Jan. 1.

Have a question about your finances? Ask us at editors@interest.com.

e-mail article | print article

| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 |