See: Second Mortgage.
It’s a big day for Danny and Sandy: they’re finally ready to buy their first house. They’ve gotten approved for a $400,000 mortgage loan, which is great, but there’s just one itty bitty teensy weensy issue: there is no way they’re going to be able to come up with the $80,000 they need for the down payment on the house. After all, who has eighty grand lying around? Not these two.
Luckily, there's an option by which they can take out an additional loan for the down payment amount. This loan is referred to as a “silent second mortgage.” But before Danny and Sandy get too excited, there are a couple things they should know about these types of loans.
First, they’re called “silent second mortgages” because, historically, these extra loans were taken out without the knowledge of the first lender. This is a big no-no. In fact, it’s more than a no-no; it’s illegal. Why? Because when we get approved for a mortgage, our lender is supposed to know about all additional loans, debt, assets, financial obligations...everything. If we sneak around and get a secret loan to cover our down payment, we’re technically committing mortgage fraud, which means we could end up facing big fines, and even jail time, if we get caught. And that would be...bad.
But there is another way. The term “silent second mortgage” can also refer to a loan-securing practice that is similar, but far less illegal. We’re talking about DPAs, or Down Payment Assistance Programs. These state-supported programs allow homeowners to take out special additional loans specifically designed to help with down payment costs. And while they’re not as “secret” as their illegal cousins—our first lender is totally going to find out about any DPA action we’re involved in—they can make homeownership an achievable dream for folks like Danny and Sandy.
DPA-type silent second mortgages are indeed additional loans, but they usually come with more favorable terms than our loud first mortgage. The interest rate might be lower, and it might not be compounded as often. Also, in many cases, we don’t have to start paying the loan back until we sell the house, which can help make monthly payments easier to manage while we’re in the house. If Danny and Sandy decide to go the (legal) silent second mortgage route, it sounds like they could be enjoying some summer nights in their own backyard in no time.
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Finance: What are the components of a mo...1 Views
Finance Allah shmoop What are the components of a mortgage
payment All right so here's a weird thing about mortgages
When you borrow say four hundred grand buy a home
and say in a six percent fixed thirty year interest
you'll end up paying way more than the four hundred
grand just in interest Renting the money Think about it
Well you'll have a monthly pay payment of twenty four
hundred bucks and by the time you've made thirty times
twelve per year or three hundred sixty payments you'll have
paid some four hundred sixty three thousand dollars in interest
charges Seems like a lot of money to pay out
of your own pocket But since mortgage interest is usually
entirely tax deductible well the rial cost to most home
borrowers is actually meaningful E less than that six percent
interest maybe something closer to a three and a half
four percent something like that So while yes on a
total gross basis you will have paid out more than
the amount borrowed over the thirty year course in the
mortgage you'll also have been forgiven loads of taxes And
for what it's worth over most thirty year time periods
in history the market has gone up about eight to
ten percent a year on average Compound did something like
that So you feel the people mover floor moving fast
underfoot with inflation pushing things around as you go along
Well the money you borrow is the principal of the
loan and that number usually declines by a small amount
each month As you make a flat payment and it's
usually gradually paid off Check out what the principal of
four hundred grand looks like for the first twelve months
of payments right here Note that the flat monthly payment
is twenty four hundred dollars and see how the principal
payed as part of this payment loan thing there goes
from paydown of three hundred ninety eight dollars Teo Well
four hundred twenty a year later right Like you're paying
off principal little by little So you have less that's
attributed to interest And Mohr that's attributed to principal pay
down as you go along and note that this assumes
Ah flat monthly payment here Right You're paying the same
amount You're one you would You're thirty two thousand three
hundred ninety eight dollars and twenty cents on this particular
alone So after a year the amount owed an interest
is well just slightly last Here in this example it's
one thousand nine hundred seventy seven bucks down from in
a two grand and note what it looks like at
the end of each of the first five years That's
a big shift from almost entirely interest do now Principal
being ah meaningful part of it you got after ten
years right here and then at the halfway point in
fifteen years it's here So I noticed that the amount
owed at this point is roughly half the total Why
Because the lion share the pay down went to interest
in the first half of the life of the mortgage
AII those first fifteen years and well then in the
back half way more will be attributed to a principal
pay down than to interest Like check out what the
very last month's payment looks like It's just twelve dollars
of interest and two thousand three hundred eighty six dollars
of principle All of this is principal until well then
the balance is zero and we'll finally Then you will
have fully paid off your mortgage and own your home
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