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Home buyers may turn backs on loan piggybacks

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Back when interest rates had hit rock bottom, consumers would often turn to "piggyback loans" to avoid the extra expense of monthly private mortgage insurance payments. Now that interest rates are up, private mortgage insurance may be making a comeback. "Because interest rates have gone up, making piggyback loans is less favorable," said Brian Carey, an economist with Moody's "Every time the Fed increases interest rates, the interest rates on those loans go up with the prime interest rate. They are becoming more expensive. Right now you are probably looking at 7-3/4 percent interest for a piggyback loan." Under a piggyback loan structure, borrowers obtain a second mortgage at purchase, which reduces the first mortgage loan-to-value ratio to 80 percent and eliminates the need for private mortgage insurance. Popularity of such loans soared around 2002 through 2005, when interest rates were low. There was even some discussion of the possibility that piggybacks might make th...