Piggyback Mortgage
Are you looking to purchase or refinance a home and would like to finance more than 80% of the value of the property? More options are becoming available. In addition to loans with Private Mortgage Insurance (PMI) or Lender Paid Mortgage Insurance (LPMI), some borrowers now have the option of adding a piggyback 2nd mortgage to avoid PMI. This option is often referred to as an 80/10/10. Let’s say you’re purchasing a home for $500,000 and you have $50,000 (10%) for a down payment. In this scenario you would finance $400,000 on a 1st mortgage, $50,000 on a piggyback 2nd or Home Equity Line of Credit and put 10% down. The Home Equity Line of Credit offers flexibility that traditional closed end mortgages do not. Like a credit card, you only pay interest on the money that is outstanding on a Home Equity Line of Credit. If nothing is owed, no interest is due. If $25,000 is owed on a $50,000 line, you will pay interest on $25,000 and still have another $25,000 available to you during the draw period. Draw periods are typically 10 years with another 20 years to pay off any balance due after the end of the draw period. The interest rate is adjustable so you need to be aware of the risks that come with it. If used properly, this financing method is an excellent tool for many to achieve their real estate and financial goals.
