MortgagesUndressed

Piggy back loans.

How piggyback loans work
Piggyback loans are the new-wave method of dealing with a down payment of less than 20 percent. When you use a piggyback, you get two home loans: a primary loan for 80 percent of the house’s value and a second mortgage for the rest of the money you need. With a 5 percent down payment, you would get what’s called an 80-15-5 mortgage: an 80 percent loan, a 15 percent piggyback and the 5 percent down payment. Getting a piggyback eliminates the need for mortgage insurance.

The piggyback can be either a fixed-rate home equity loan or a variable-rate home equity line of credit. The piggyback has a higher rate than the first mortgage.

The combined payments on a piggyback mortgage are a bit less than the payment on a single loan with monthly mortgage insurance premiums. For years, piggybacks had a big advantage because the mortgage interest on both loans was tax-deductible, while mortgage insurance payments were not. Now that has changed, with caveats.