Piggyback mortgages that is, not the ride children love. Piggyback mortgages, a.k.a. second mortgages, are a loan that rides on top of your primary mortgage. In combination with your down payment, these mortgages allow you to avoid paying private mortgage insurance (PMI). They were extremely popular in the early 2000s and then went almost extinct after the housing market declined in 2008. With the economy and the housing market on an upswing, it looks like Piggybacks are coming back.
Piggyback mortgages are ideal for several reasons
It’s great for borrowers who want to avoid paying private mortgage insurance but have less than 20% saved for the down payment. The mortgage can be structured with an 80% first mortgage, 15% piggyback, and 5% down payment or an 80/15/5. Another combination could be 80% first mortgage, 10% piggyback, and 10% down payment or an 80/10/10. Depending on interest rates, piggybacks may also provide a lower payment than a traditional 95% loan to value mortgage with PMI.
Piggybacks may also be used for borrowers needing to finance over $453K that want to avoid using a Jumbo Loan. Jumbo Loans tend to have higher interest rate and fees. Therefore, the combination of a first mortgage and piggyback mortgage can be more favorable.
Buying a new home but have not sold your original home yet? Many borrowers rely on the proceeds of their current home to use as a down payment on their next home. By using a piggyback mortgage, they can put a smaller amount down and pay off the piggyback loan when the home sells.
Many piggyback mortgages are dual purpose and can function as a home equity line of credit (HELOC). HELOCs are like credit cards that are maxed out when you open them. As you pay it down, you still have access to that line of credit should you need it at a later date. Many borrowers will keep their HELOC open even after paying it off to have access to credit for large expenses such as a remodeling or buying a car.
Piggyback loan terms
Piggyback mortgages are considered a second loan at closing. So, they come with their own set of closings costs and fees associated with them. A lender that can provide both your first mortgage and your piggyback mortgage together may be able to save you a little money at closing versus having to use two separate lenders. Piggybacks can also vary sharply from lender to lender from the features they offer to length of the loan term. Interest-only payment features can provide for lower payments while a shorter loan term can help you pay off your mortgage faster. Depending on your lifestyle and financial goals, make sure you shop around for the piggyback that works best for you. Visit amerisbank.com for a list of lenders in your area and learn more about the Ameris Bank Piggyback HELOC. The information voiced in this material is for general information and is not intended to provide specific advice or recommendations for any individual.
