Home Mortgage Refinancing Guide

If you are purchasing your home with cash for only a five or ten percent down payment, should you consider a piggyback mortgage loan or private mortgage insurance? Many industry experts recommend piggyback mortgage loans in the present economy. If mortgage interest rates continue to go up this recommendation could change in favor of private mortgage insurance. In most cases, potential home buyers that do not have a 20 percent down payment have to purchase private mortgage insurance. PMI protects the lender in case of default on the loan, and it the homeowner that pays the monthly premium. An attractive alternative to PMI are the piggyback mortgages. These loans are called piggyback because a second mortgage loan is piggybacked onto the first mortgage loan. This can be much less expensive than PMI. There is a catch, not everyone will qualify for this type of loan. A piggyback mortgage loan is a second loan that closes at the same time as the first mortgage loan. Typically the first mortgage loan is only 80 percent of the home value.

A piggyback loan is usually for 10 percent of the remaining balance, after that the purchaser has to come up with the rest as a down payment. Piggyback mortgages are also called 80-10-10 loans. Some lenders even allow second mortgage loans up to 15 percent and even 20 percent of the home value. Interest rates on the second loan vary; they are often one to two points higher than your first mortgage as these loans are riskier for mortgage lenders. To learn more sign up for our free guide: Mortgage Refinancing, What You Need to Know.