The Recent Closed Deals-80 - 10 HELOC

Mr. and Mrs. Snowbird are on contract to purchase their dream home on the beach. They have a surplus in equity in their home up north, but will not close on said property before they close on the beach house. The Snowbirds know that upon selling their former residence, they will be able to pay down the note on the beach home to less than 80% of the original purchase price, but will still have to make the same loan payment, as they have a thirty year fixed rate mortgage. The Snowbirds are less concerned with paying the mortgage off in a reduced time period as they are with having greater cash flow. Furthermore, the mortgage used for purchase on the beach property must be for 90% of contract price, as they still have equity tied up in their former home. Loans over 80% of purchase price typically result in the lender requiring the borrower to incur an additional expense: Private Mortgage Insurance. The Snowbirds problems: Mortgage Insurance, and a larger mortgage/ payment than they will ulitimately need. The solution: An 80% first mortgage, and a 10% home equity line of credit (HELOC). The first and second mortgage combined will meet the Snowbirds purchase funding needs, and by having a first that does not exceed 80%, they will not be required to pay for mortgage insurance. The really great news is that as soon as their snowland property sells, they can pay off their 10% second mortgage, thus improving their monthly cash flow.