Piggyback Second Mortgage

When you finally decide to buy a home, a lot of thoughts enter your mind. Where, what kind and when are the three exciting things to ponder about your home.

But probably the most important, yet miserable thing to have to think about is a mortgage. You probably need a mortgage to finance your home (unless you have $500,000 cash!), but which program is right for you.

There are almost as many mortgages to choose from as there are available lenders to offer them.

Dennis Estrada, writer for ezinearticles.com explains one mortgage option that is attractive for many people with less income, in his article, “ Piggyback Second Mortgage.”

“The Piggyback Second Mortgage provides an option to home buyer who can not afford a twenty percent down payment. Without enough funds for twenty percent down payment, the home buyer pays an expensive Private Mortgage Insurance (PMI). Mortgage Lenders are able to provide the usual ten percent second mortgage without PMI. Only a few mortgage lenders can provide fifteen or twenty percent second mortgage without PMI.”

This is an important loan because in this day and age, more and more people are applying for homes without the necessary 20 percent down payment.

In the past this would be impossible, but now borrowers use it as a trade off for higher interest rates the PMI.

What most people do not know is that their PMI payment will add about $250 every month to their mortgage payment. That adds up quick, to about an additional $3,000 each year for 30 years.

Piggyback second mortgages have increased in interest and originations lately for a couple of reasons.

“The monthly mortgage payment costs less than a mortgage with PMI. The PMI protects the mortgage lender in case of default on mortgage payment. However, the PMI has no benefit at all to the home buyer.”

“The interest on first and second mortgage are tax deductible from the time being. Mortgage interests are actually one of the important tax deductions for home owners. In fact, some homeowners elect not to pay off mortgage early for tax purposes.”

Another benefit of the piggyback second mortgage is that the home buyer avoids the higher interest for a Jumbo Mortgage Loan.

Basically, each year the government sets a conventional mortgage limit for purchase.

“If the mortgage exceeds the conventional mortgage limit for purchase, the mortgage lenders considers the mortgage application as Jumbo Mortgage Loan. Since the Jumbo Mortgage Loan offer higher risk to mortgage lenders, the mortgage lenders give higher interest rate on Jumbo Mortgage Loan.”

Like every other mortgage loan, or most investments for the matter, piggyback second mortgages have some disadvantages.

“The house prices go up or down. As the house prices goes up, the equity on the house grows as well. When the home equity goes up to twenty two percent, the home owner can cancel the PMI. The Homeowners Protection Act of 1998 requires the removal of PMI on loans made after July 29, 1999 after the homeowners pay down twenty two percent of equity.”

But as long as you home gains equity at a decent rate, a piggyback second mortgage should be a wise idea.

You have to be careful before signing any mortgage and this one is no different.

“The Piggyback Second Mortgage benefits the home buyers, but the second mortgage requires some crunching on numbers. With this second mortgage, the home buyers pay less mortgage payment, and income tax.”

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