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What is a Piggyback Loan? What is a piggyback loan? - A piggyback loan is simply a second mortgage that is created at the same time as the first mortgage. Borrowers often get two loans at the same time to avoid paying mortgage insurance. Thus, the nickname came about "piggyback", one loan on top of the other. A piggyback loan is also called a second mortgage or a HELOC (Home Equity Line of Credit). Though often used to get rid of Mortgage Insurance, they can also be used for a myriad of other reasons that are advantageous to the borrower. Piggy Back mortgage - A Piggy Back Mortgage also know as an 80/20, 80/15 or 80/10 is actually two loans a first and a second used to avoid paying mortgage insurance. Piggyback mortgages help you to qualify for a bigger house by avoiding the PMI payment. Piggyback loans are becoming increasingly popular and are a way to avoid paying mortgage insurance. Combo loans allow you to deduct the interest paid on your primary and second homes come tax time. Private mortgage insurance is not wholly tax deductible and therefore is not as appealing to many home buyers. Be sure to discuss any tax deductibility concerns with your accountant and loan officer. A piggy back mortgage may actually help you lower your monthly payment. Loans with higher Loan To Values usually come with higher interest rates or PMI. Piggy Back mortgages may actually provide you with a lower interest rate and payment. Piggy Back loan rates when combined with first mortgage rates often have a blended rate which is lower than the same comparable 1 mortgage loan. Besides avoiding Private Mortgage Insurance, Piggyback mortgages are also used to keep the first mortgage within the conforming loan amount. It 2006, the Fannie Mae conforming loan amount for single family homes is $417,000. Instead of paying the interest rate of a single Jumbo loan of $450,000, it may be benefitial to the home buyer to use piggyback loan program and break down the loan into two mortgages, the first mortgage of $417,000 and a second mortgage of $33,000. You can get a piggyback mortgage from the same lender, but most lenders will allow for the second loan to be from a different lender, this may save you a lot of money. Seller carry back - A home seller may be able to loan a portion of the selling price to the buyer and secure it with a mortgage or trust deed against the home. The seller would not get his portion of the sale imediatly in cash but would get income in the form of the payments made by the buyer. This is a popular form of financing, when borrowers cannot otherwise qualify for a traditional piggy back loan, or are unable to come up with an otherwise required down payment. The lender will want to see the terms and agreement of the seller held second. The lender will figure in the payments of the seller held second when qualifying the borrower for the first mortgage.
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