Dear George: "What is a reasonable interest rate on the second mortgage in an 80/10/10 or an 80/15/5 loan? What do you think is too high an interest rate?" - Tax Conscious

Dear Tax Conscious: Interest rates will usually run from 1 to 2 points higher on the second than the first. The primary reason for an 80/10/10 or 80/15/5 is to avoid paying PMI. PMI is generally a non-deductible expense. The interest paid on the 2nd mortgage portion - either 10% or 15% in your examples, however, is deductible. The "value" of the interest deductibility will probably vary from taxpayer to taxpayer. However, there is a point where the higher interest rate on the second begins to equal the value of the deduction. I think that is the point at which the interest rate is "too high." It is also described as the point of "diminishing returns."

Dear George: "I am buying a new construction home. The plans call for a slope of 9% for the driveway to the garage. The driveway may be 35 to 38 feet in length. Is a 9% slope too steep an incline for a garage driveway? Is it safe when there is snow or ice on the driveway?" - Worried

Dear Worried: You should consult an expert for your answer. Start with the Planning Department or the Public Works Department in the city or county where your home is being built. You may also wish to enter the words "driveway AND slope" in the text box of your favorite search engine. In addition, you might wish to check out the FAQs and Bulletin Boards on some remodeling sites. One site that comes to mind is Improve Net. Yet another site is Remodeling Magazine's online version.

Dear George: "I'm doing a research project on the hottest real estate markets in the United States. I'm looking for large cities where residential real estate is in high demand. Do you have any suggestions where to start?" - Researcher

Dear Researcher: Begin with the National Association of REALTORS®. If you don't have REALTOR® access to NAR's website, try calling Information Central. Talk to a customer support specialist. Call 800-874-6500 between 8:30 AM and 5:00 PM Central Time, Monday - Friday. Much of the information may still be available to non-REALTORS®, but at non-member prices. Otherwise, the next source is the U.S. Census but those figures are not as current as the NAR reports.

Dear George: "When I purchased my home 5 years ago, PMI was taken out as a lump sum at the beginning of the loan. Now that the loan is paid down below 80%, they are telling me there is no way to recover this amount. Is this true? Also, is it legal to take out PMI as a lump sum at the beginning of the loan?" - Surprised

Dear Surprised: PMI premiums are usually a percentage of your loan amount. The premiums may be paid in a lump sum. The usual manner of payment in recent years, however, is a monthly amount added to your mortgage payment. Private Mortgage Insurance ("PMI") insures lenders against losses in the event a borrower defaults. Just as hazard insurance, or automobile insurance is not recoverable just because the insured did not use it to pay a claim, PMI is not recoverable just because the borrower did not default. To learn more about PMI, visit:

• http://www.privatemi.com
• http://www.hsh.com/pamphlets/mgicpmi.html
• http://www.pmigroup.com

Published: May 31, 2002

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