PrivateMI or Piggyback Loan: Which Is Best for Me?
Some lenders offer low down payment loan products that don't carry PrivateMI. The most typical is the piggyback loan, also called an 80-10-10. The piggyback stacks a high-rate small second mortgage on top of a lower-rate first mortgage. While a piggyback allows you to buy a home with less than a 20 percent down payment and no PrivateMI, it has pitfalls:
- Your monthly mortgage costs could be higher. You can finance your mortgage insurance premium as part of your mortgage loan and pay lower monthly payments than you would with a piggyback loan.
- You could face a big balloon payment. Many piggyback mortgages include a balloon payment in the 15th year. That payment could be difficult for you to make, or to refinance at a future interest rate that might be much higher.
- You could lose your financial safety net. When you already have a second mortgage on your house, you most likely cannot get a home equity loan to cover such expenses as college tuition or major medical bills.
- You can't cancel that second mortgage. Mortgage insurance is cancelable once you build up enough equity in your house. Payments on a second loan don't stop until the loan is paid in full. Borrowers will typically receive a refund of any unused premium if they select the financed single premium option.
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Use this calculator to figure out whether a mortgage with a financed mortgage insurance premium or a piggyback loan is better for you. Keep in mind that PrivateMI premiums are tax deductible for qualified borrowers.