What is a combo loan?
Have you heard of the term combo loan and dont understand exactly what it is, why it is used, and what the benefits of a combo loan are? You are not alone and this is a very highly asked question. A combo loan is a type of mortgage loan where a combination of 2 loans is used versus 1 large loan. Normally a combo loan is used to avoid PMI and to save money on your monthly payment.
Many jumbo mortgages used to purchase or pull cash out of property are structured as combo loans, with a first mortgage and second mortgage or line of credit.
In a combo loan the second mortgage will have a higher interest rate than the first mortgage. Your mortgage broker will more than likely quote you a blended rate which is the average of the two interest rates combined.
Combo loans are typically broken into 80/20 or 75/25 loans. The first number represents the percentage of the loan amount covered by the first mortgage, while the second number is the percentage of the second mortgage. A 75/25 loan will generally offer a better interest rate on the first mortgage.