Athen Apaquette

If you’re in the market for a new home, but you have less than 20% to put down, you may not have to pay PMI! How is this possible? With an old loan that is NEW again. It’s called the Piggyback or 80-10-10 loan.

PMI or Private Mortgage Insurance  is an insurance policy that protects the lender in case a homebuyer defaults on the loan. It is usually required if you put less than 20% down on your new home, and it is generally not tax deductible.  If you have a FHA loan you are required to carry MIP or Mortgage Insurance Premium which is permanent for the life of the loan.

A Piggyback loan is a dream come true; the rich relative you don’t have. If you have 10% down, the bank will lend you the other 10%.  This way, the first mortgage lender is giving you 80% of the price of the home in a loan. So their risk is the same as if you had 20% down.

The result, no PMI!

For example, if you are in the market for a home that cost’s $500,000, and you have $50,000 down, you will need another $50,000.

With a Piggyback loan, you’ll have a main loan (first mortgage) of $400,000  at current rates of 4% interest,  and a second mortgage that is piggy-backing on the first mortgage for $50,000 at the current prime rate +1% to prime rate + 2% depending on credit and property type.

With this kind of loan you can write off the interest on both loans!

However, the second mortgage is tied to the prime rate and can go up when the Federal Reserve raises the prime rate, so make sure you have a plan for those increases.

Let’s compare:

Price $500,000

Piggy Back

PMI

1st loan payment 30 years

$1909.55 (4%)

$2213.73 (4.25)

2nd loan payment 20 years

$336.92 (5.25% 20 years)

NA

PMI

NA

$187.50

Prop Tax

$520

$520

Insurance

$50

$50

Total

$2816.47

$2917.23

Notice that the interest rate is higher on loans over $417,000.  Also notice that the Piggy Back loan is building equity faster at a 20-year pace as opposed to a 30-year pace. 

The tax write off is also slightly higher (consult your tax professional).

So to make your mortgage the least expensive and the most efficient contact me for a free 90-minute consultation.