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The Benefits of Split Loans

You are in the market to purchase a house. You have excellent credit, and you know the price range you can afford a mortgage for. You only have one problem – you don’t want to pay private mortgage insurance. After all, you have excellent credit. Well, you have options that have additional benefits as well: split loans.

What Is a Split Loan?

In a split loan, you divide your mortgage into two loans, typically one fixed rate and one variable rate. The split can vary depending on your needs and you have options for the type of variable rate loan you choose for the 2nd mortgage.

The Pros and Cons of Variable Rate Loans

A variable rate loan means that your interest rate for the loan will change when interest rates change. The pros and cons of this type of loan are, then, simple. If interest rates go down, your rate on your loan goes down. This means you can pay off the loan faster or choose to lower the amount you pay (big pro in either case). However, if interest rates go up, your loan rate goes up and you must pay more each month on the loan (definitely a downside).

How Does a Split Loan Help Me Avoid Private Mortgage Insurance (PMI)?

For conventional mortgage loans, if your down payment is less than 20% of the cost of the home, you must purchase private mortgage insurance (PMI). This is regardless of how good your credit is.

Say, for example, that you want to purchase a $100,000 home. You have $15,000 for your down payment and can finance for $85,000, but you will have to pay PMI.

Using a split loan, you can finance $80,000 as a conventional mortgage and finance $5,000 as a variable rate 2nd mortgage loan. This gives you the $20,000 you need for your down payment to avoid PMI.

The Type of Loan Matters

While you have multiple options for variable rate loans, a Home Equity Line of Credit, or HELOC, is an ideal loan to use for a split loan. A HELOC is a revolving line of credit, meaning that as you pay down the amount borrowed for the loan, that credit becomes available to you again. This means you can pay down your HELOC and have the line of credit available to you later for repairs, renovations, an emergency, or other uses.

How can we help you or your clients reach their dream of home ownership? Go to to schedule an appointment and talk about your or your clients’ options.


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