Should i get a piggyback loan

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A piggyback mortgage is when you take out two separate loans for the same home. In either case, the first and second digits always correspond to the primary and secondary loan amounts. Once the housing bubble burst, many homeowners found themselves with negative equity, known sometimes as being underwater or upside down on the loan. This left many to default on their home loans and having two mortgages caused troubled when homeowners tried to obtain a loan modification or short sale approval.

People often take out piggyback mortgages to avoid private mortgage insurance. However, as the housing market begins to strengthen, these may become more commonplace.

This lowers the risk to the lender by increasing the cost of your loan, protecting them in the event that you default. Mortgage insurance rates can fall anywhere between 0. However, piggyback loans are structured a bit differently. But reducing the size of your primary mortgage loan has a number of benefits.

This is commonly used when buying a condominium. The reason is because condo loans are considered somewhat riskier for a lender when compared to single-family homes.

Piggyback loans are never usually needed for people who are making hefty down payments where mortgage insurance is not required. However, there are two strategic situations where it may be in your favor to take out a piggyback second mortgage. It shields the lender from loss in case your default. Keep in mind that private mortgage insurance does not protect you from harm in case you default.

Not being able to pay for your loan may still cause your credit to plummet and your house to be foreclosed. While interest rates will still apply to your second loan, your monthly payments are likely to be considerably lower than they may be with mortgage insurance. Basically, it means that the home is too expensive for its surrounding area to be securitized or guaranteed by Freddie Mac or Fannie Mae. These choices will be signaled globally to our partners and will not affect browsing data.

We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Home Ownership Mortgage. What Is a Piggyback Mortgage? Key Takeaways A piggyback mortgage is any additional loan taken out on a property following a first mortgage.

Piggyback mortgages are used to help with covering down payments on a property or to avoid paying PMI. Cash-Out Refinance This mortgage-refinancing option—the new mortgage is for a larger amount than the existing loan—lets you convert home equity into cash.

Use it with care. Second Mortgage A second mortgage is a mortgage made while the original mortgage is still in effect. Learn the requirements for a second mortgage and how to apply.