Save Interest with a Second Mortgage or a Higher Down Payment

On a loan of $450,000, that extra one-half percent for the jumbo loan would cost $148 per month more ($2,872 as opposed to $2,724).3 Viewed differently, you pay $2,525 per month to borrow the first $417,000, and $347 per month for the additional $33,000 to bring your total home mortgage up to $450,000. In terms of interest for that extra $35,000, your effective charge is around 12 percent. If you limit your first mortgage to Fannie/Freddie's maximum, therefore, you could borrow the remainder ($33,000) as a second mortgage. As long as your interest rate on this loan falls below 11 percent, you save money.

Alternatively, if you can come up with $33,000 more for your down payment, you would profit—unless the cash or investment source of this down payment was earning a very safe tax-free return of 11 percent or greater (not an easy feat in today's investment climate.)4 You could pledge collateral to secure this $33,000 (see Chapter 6).

These examples illustrate tiered financing, which can often save you money. This same technique applies to loans with low down payments and mortgage insurance (also in Chapter 6). You need not understand how to make these calculations, but you do need to see the potential of the technique. Then ask a smart loan rep to run the numbers.

0 0

Post a comment