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A piggyback mortgage is a second mortgage that is used in conjunction with the first mortgage at the time you purchase or refinance a home. Many borrowers use a piggyback mortgage when they do not have enough money to put down on their purchase.
Benefits of a Piggyback Mortgage
You can use a piggyback mortgage to help avoid paying private mortgage insurance (PMI) due to a high loan-to-value ratio. For example, if you are buying a home and you must finance 95 percent of the value, you would have to pay PMI to offset the additional risk to the lender for financing more than 80 percent of the home’s value.
Instead of paying the PMI premium, you could choose to use a piggyback mortgage. This is a second mortgage, so the rate will usually be a bit higher than that for the first mortgage. You can also consider taking out a smaller amount on your piggyback mortgage and paying for some PMI. For example, you could finance 80 percent of your home with the first mortgage and 10 percent with the piggyback second mortgage and cover the remaining 10 percent with PMI. Ask your lender to help you decide which solution is best for your situation.
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