Piggyback loans more costly in today’s market

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A piggyback is a second mortgage taken out at the same time as a first mortgage, as a way of borrowing a larger total amount. The first mortgage is for 80 percent of property value, and therefore does not require mortgage insurance, while the piggyback is for 5 percent, 10 percent, 15 percent or 20 percent of value. Instead of a mortgage insurance premium, the borrower pays a higher rate on the piggyback than on the first mortgage. Whether a piggyback saves the borrower money relative to mortgage insurance depends on many factors, including the rate on the piggyback relative to that on the first mortgage. These factors are pulled together in calculator 13a on my Web site. During the years 2000-2006, the advantage seemed to favor piggybacks, and they grew rapidly at the expense of mortgage insurance. It helped that interest on piggybacks was tax-deductible and mortgage insurance premiums were not. In addition, because of the marked appreciation in home prices during this p...