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80/20 loans are popular mortgage loans. They have a high interest rate and are used for the actual cost of the mortgage with no equity. The state of 80/20 loans is the same as the state of other mortgage loans, as lending of all types is down and the housing and banking crisis continues.
How an 80/20 Works
The mechanics of an 80/20 loan are easy to understand. A primary loan is taken out, covering 80 percent of the primary mortgage cost. A piggyback loan at a higher interest rate than the primary loan is also taken out. This piggyback or secondary loan takes care of the remaining 20 percent of the mortgage cost. A borrower may be required to come up with a down payment of up to three percent and any closing costs related to the sale.
Benefit to a Borrower
The advantage of an 80/20 loan is that it lowers the required amount of out-of-pocket dollars a homeowner needs to come up with. This is especially important for first-time homebuyers and those who may have the 20 percent but tied up in some other asset. Lenders may recommend 80/20 loans to certain borrowers in the same breath they use to describe other types of loans that a homeowner may consider.
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