Many mortgage lenders offer 100% loans today. (See item 5 above.) However, those typically are high-rate loans: you might pay 9.5% instead of 8%. You also might have to pay private mortgage insurance (PMI), which can be expensive. No-down-payment programs at brokerage firms offer competitive interest rates and don’t require PMI payments.
You may enjoy tax advantages, too. A 100% mortgage, of course, yields larger write-offs than an 80% mortgage, so you’d have greater interest deductions with a no-down-payment mortgage. At the same time, the money you invest in stocks may grow, tax-deferred, and ultimately any gains may qualify for the bargain 20% rate on long-term capital gains.
If you’re interested in buying or refinancing a home with nothing down, call your local office of Merrill Lynch, Morgan Stanley Dean Witter, Salomon Smith Barney, or Fidelity Investments. Charles Schwab likely will have its own program next year.
