Purchase-Money Second Liens
Purchase-money second liens are exactly what you would expect, given their name: they are second liens that are taken out for the purchase of a property. They are usually done as a way to avoid private mortgage insurance (PMI) and always carry with them a higher interest rate than that of a first lien. However, even with the higher interest rate, it almost always makes sense to take a second lien instead of PMI because your total housing payment is almost always less with a second lien. AND, second-lien interest is tax deductible, just like first-lien interest.
So, you ask, why would anyone want PMI when you can save money with a second lien? Well, good question! The only problem with second liens is that they are becoming increasingly difficult to qualify for because there is so much risk for the lender. One other problem is that they typically are balloon mortgages that are due in 15 years, which makes some people nervous.
So, you ask, why would anyone want PMI when you can save money with a second lien? Well, good question! The only problem with second liens is that they are becoming increasingly difficult to qualify for because there is so much risk for the lender. One other problem is that they typically are balloon mortgages that are due in 15 years, which makes some people nervous.
