Combination loans replace mortgage insurance with a second mortgage for the loan amount over 80%. This second mortgage carries a higher, adjustable interest rate to balance the higher risk created by a high LTV loan.

Know Your Future Plans

If your home is a short term purchase, a combo loan may be right for you. By selling the home, you’ll be able to pay off both loans before the rates rise on the second. However, if you plan to stay in the home for awhile, consider these factors:

• Mortgage insurance can often be cancelled before a 15 year second mortgage would run out
• Appreciation on your home could allow you to cancel Mortgage Insurance even sooner -- second mortgages are for fixed terms
• Having a second mortgage may prevent you from getting a home improvement loan later, if you need one.
• Additional closing costs associated with a second mortgage may add up
• There are two payments to make each month with a second mortgage

Take a look at our cost comparison calculator to evaluate your options.