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Exotic loans make sense for specific applications, even when mortgage insurance might be part of the equation.

Zero down loans replaced VA and FHA for the most part. High rates on the second mortgages replaced PMI. Ten years ago a person might put 5% down and take out a 95% first mortgage and a lower rate, but they had to pay “Private Mortgage Inurance” on the top 15% of the LTV. The PMI amount was not tax deductible. The payment on the second at the higher rate was lower than the loan plus PMI payment and fully tax deductible. A conventional loan with a high rate second may “look” bad, but actually the numbers usually work better than a regular loan with PMI (the old fashioned way) or a 3% down FHA with an up front plus monthly MIP (Mortgage Insurance Premium).

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