RE: What is mortgage and how can you have two mortgage?
What is mortgage?
How do some people have two separate mortgage payments?
Why would you need mortgage insurance?
Sorry, i thought i knew what it all was then after reading up on everything i just got extremely confused… someone help lol THANK YOU
A mortgage is a loan from a financial institution allowing you to purchase a home. Typically, you will put down 20% of the value of your home and mortgage 80%. Some people will take out a second mortgage (at a higher interest rate) to take money out of their home that they have vested. Here’s an easy example:
A home cost $100,000 that you want to purchase. You put down $20,000, and a bank finances $80,000. So right now, you “own” $20K of your home. Now lets say you need $10,000 for some reason. You can take out a second mortgage because you “have” $20,000…it’s just not available (it’s in your house). So now you “own” $10,000 of your home, you have $10,000 in cash you borrowed with your second mortgage (at a higher rate) and you borrowed $80,000 with your first loan.
PMI (insurance) will typically be required by a bank if you are unable to “own” 20% of your home. It will protect the bank’s investment in the event you default on your loan and the bank cannot recoup your outstanding debt after the foreclosure on your home. A nice trick, however, is the 80-10-10, where you take out a first for 80%, and a second for 10% (and provide 10% in cash). You will get “credit” for having 20% and therefore avoid paying PMI. This can be advantageous because a mortgage payment is tax deductible while PMI is not. The payments will be approximately the same, but because the interest is higher on the second you stand to receive a substantial refund come tax time for all the interest you pay. Later, you can refinance your first to include your second if your house has appreciated enough.