What do you think of the 10/20 mortgage?

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F

finally buyin_IHB

New member
<p>I have a rate-lock on a 10/20 mortage for my home purchase and wanted opinions on this type of mortgage. The 10/20 is a 30 year fixed mortgage with a 10 year interest only option. The reason I lean towards this is that the minimum monthly payment is much less than it would be for a 30 yr fixed. Since I have a sales job and my income varies from month to month I like this, so that I can make the min payment each month and put in a little extra whenever I get a bonus/commision check. </p>

<p>Some issues that I am aware of are:</p>

<p>1. The rate is a little higher. I am getting a 6.125% rate which is just a hair higher than the 30 yr fixed jumbo, but not a whole lot. </p>

<p>2. I need to be disciplined about paying more than the min payment to pay down the principal, whenever I have extra cash-flow otherwise I will get a payment shock at the end of 10 yrs when it changes from interest only to principal+interest. </p>

<p>Are there any other potholes on this road that I should be aware of?</p>
 
<p>Finally-</p>

<p>If you aren't concerned about the value of your house dropping tens of percent in the next two years, I wouldn't quibble over a few eighths of a percentage point on the mortgage. It is in the noise.</p>

<p>Make sure you can afford your payment. Anytime I hear someone say they can't commit to the payment on a fully amortizing 30 year fixed, it sounds like there are underlying questions of affordability (even taking into account volatility in earnings from a commission-based job).</p>

<p>Good luck and be careful.</p>

<p>SCHB</p>
 
F B - I like your middle of the road conservative approach. Moreover, 30-yr fix is the cheaper type of loan (yes, long term rate is lower than short term in today rate market). Just picture yourself 10 years from now. More likely you will either upgrade or down-size.
 
<p>finallybuying</p>

<p>30 year with 10 yr interest only option is the best loan to have if your goal is not to pay off the loan and settle there forever. The chance of moving in 10 years is high for most people. Even if you decided you want to live there longer later, your interest rate won't change like some of the ARMS...it will just amortize fully at your current rate. In ten years, there is excellent chance that your house value will be higher than today's value, so you will have choices then. </p>

<p>In terms of your concern on diligently paying principals, I have a differet thought for you to consider: given the fact there is not likely much appreciation at all in the next several years, why do you want to pay more towards principals unless you are ready to pay off the house and retire there? Your interest rate will be about 6.5% at the max, and that is tax deductable. So you are borrowing at a after tax rate of no more than 4.5%. I would put the cash in a index fund, and and you will average more than 4.5% a year in 10 years ( you pay only 15% on long term capital gain if the current law stands). </p>

<p> </p>

<p> </p>
 
FinallyBuying....I agree somewhat with Irvine123. You really need to decide what your plans are for the next ten yrs and make your decision on that.





As for the principal, I always feel that it is a good idea to pay as much as the principal down that you can without 1) strapping yourself to your mortgage and 2) still being able to make other investments else where. Not paying down the principal in my personal opinion could wind you up exactly where many of the buyers of yesteryears are now, no equity and no chance of being able to refinance.
 
You stated earlier that your income fluctuates from month to month or qtr to qtr. What I am referring to is that you don't want all or a significant portion of you check going towards your mortgage. I have always lived by a philosphy of paying myself first. Call it a rainy day acct, fun money, a slush fund...etc. Whatever you want but this acct is your money that you can do whatever you want with knowing that you are able to take care of your bills and other pertinent expenses.





To many ppl spend all their money on loans, whatever they might be, while neglecting their savings accts, IRAs, 401Ks...etc.
 
finally buyin,





The biggest concern I would have in your position is going underwater. Life may take you somewhere else 5 years from now, and you may be forced to pass on opportunities because you can't get out of your house. When you are paying down a conventional mortgage, you are reducing the balance which would give you some wiggle room if prices decline. If you only pay interest, you might be trapped in your house for many years. Also, don't make the assumption that properties will be worth more 10 years from now. This is a big bubble. It may take longer than 10 years from prices to rebound back to the peak, particularly with all the mortgage reset overhang in the market. I don't see any meaningful appreciate for at least 6 or 7 years (5 years worth or resets followed by 18 months worth of foreclosure time.) Keep in mind that the appreciation party is over.
 
Who offers the 10/20 ? Never heard of such mortgage. i'm interested in looking into that package. I'm a first time buyer and looking to learn about every program that's out there for a logical and desirable mortgage plans. Thanks
 
<p>iceeman,</p>

<p>If your credit is 620 and above - Wellsfargo or BA are good. Best rate now is the 30-yr fix interest only for the first 10 years. A reputable loan officer can explain to you. Good luck.</p>
 
<p>nirvinerealtor,</p>

<p>thanks again for your input and information. i am definitely in the tier 1 credit level at about 750...so that shouldn't be an issue. i'm just not familiar with the 10/20 interest only first 10 year program. Will wellsfargo or BA offer 100% financing on these plans? i have some money to put down..but if they can finance me 100% that'll be better so i can use the money for other investments. just curious.</p>
 
<p>iceeman,</p>

<p>Just few months ago, before the subprime trouble, anyone can get 100% finaning, not anymore, 5% down if you are lucky. You want to go with prime program because it gives the lowest rate. You will need 5% down minimum. Your loan would be 80/15/5. 80% loan at rate around 6%, 15% loan around 7.75% for the sake of calculation. Stated income used to be stated; I do not believe it's that simple anymore. Please get pre-approval and GFE's from 3 different loan officers. Tell all the loan officers that you are getting 3 quotes so all 3 will quote the lowest. The GFE's should be almost gold from reputable banks. Sorry these lingos will stick eventually.</p>
 
<p>iceeman,</p>

<p>I forgot to remind you that seller can contribute to all your non-recurring cost, up to 3%, which you can get in this buyer's market. You will have to negotiate these terms before open escrow though. This will help your upfront cost. Tell this to both your loan officer and your real estate agent (if you decide to have one) so they can arrange for you. Good luck.</p>
 
nirvinerealtor - I will have to double check tomorrow but last I checked 100% financing is still available for "A" borrowers. Some "A" lenders have eliminated it and almost all subprime have but it won't go away until they start having the same problems as subprime or the lender declares that area/zip code is a declining value area. It takes a lot for a lender to declare a declining value area.
 
i know it's difficult to find 100% financing ... but i did manage to find some builders that's offering it depending on the market location. I was at Portola Springs over the weekend and Sandero Townhomes by John Laing Homes did offer me 100% financing with respect to my credit score. I didn't apply formally but their finance guy told me that it shouldn't be too hard for 100% financing with them due to my score. Not sure if he was just pulling my leg, but they did mentione it is still available.
 
<p>iceeman,</p>

<p>Countrywide is still doing it, I think. It will cost you for the risk. And you will have to prove your income. A very difficult and expensive loan now aday.</p>
 
100% financing is not usually a good idea due to the fact that your second deed will be a lot more expensive - in the 8% range depend on your credit score. Also, anything more than one million in mortgage is not tax deductable.

I know you can find alternative investment for your cash, but it is never sure that u can get 8% before tax. So putting 20% equity towards your house is a better idea in my opinion. What I will suggest is after 20% equity down, use the 10/20 loan, and divert the extra cash to investment account. This way you will achieve optimal return and max flexibility.



Good luck.
 
100% financing is not usually a good idea due to the fact that your second deed will be a lot more expensive - in the 8% range depend on your credit score. Also, anything more than one million in mortgage is not tax deductable.

I know you can find alternative investment for your cash, but it is never sure that u can get 8% before tax. So putting 20% equity towards your house is a better idea in my opinion. What I will suggest is after 20% equity down, use the 10/20 loan, and divert the extra cash to investment account. This way you will achieve optimal return and max flexibility.



Good luck.
 
10/20 mortgage is not a bad move as long as prices as stabilized- who knows when that will be- but i can't see them going much lower.

Found this on 10/20's



http://www.bankapedia.com/mortgage-encyclopedia/residential-mortgage-terms/71-1020-mortgage



In this market however they are probably pretty tough to find. Interest only became a bad phrase during the mortgage fallout- because of the widespread abuse.

As if people wouldn't be under water if they were in a PI loan



what can ya do- at least the interest rate is fixed for the life of the loan on this one and 10 yrs is a reasonable amount of time to expect to be making more money to afford the increased payment
 
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