Comments on: What’s a Piggyback Mortgage?

By: Boris

Boris — Thu, 26 Apr 2007 17:20:42 +0000

What happens when you pay more than the regular monthly payment for a piggyback mortgage? Does it reduce future monthly payments or just reduce the principal out of the back end?

By: Jerry Kindall

Jerry Kindall — Fri, 21 Apr 2006 18:41:40 +0000

The balance transfer game is great fun, but it doesn’t start to be actually profitable until you’re significantly leveraged. Right now I have just under $10,000 in 0% loans (all of it in a savings account earning 4.5% interest). I’ll make over $400 off my credit this year, which I’d imagine would be right on the edge of being “worth it” for most people. But frankly, I like getting free money (and stuff) regardless of how much it is, that’s just how I am. I’ve already collected $100 this year just for opening bank accounts (last year I made $75 at this).

By: nickel

nickel — Thu, 20 Apr 2006 03:21:03 +0000

While it may end up working out, I’m not crazy about the idea of maxing out my credit cards while I’m in the process of applying for a mortgage. Actually, I’ve never really gotten into the 0% balance transfer game. I realize that I’m probably leaving money on the table, but it’s never really been worth it to me.

By: meg

meg — Thu, 20 Apr 2006 02:07:34 +0000

Here’s a thought (and it has been hashed over thoroughly at Fat Wallet) but why didn’t you do a 0% BT instead of the 2nd mortgage. I ended up getting a much needed 30K to put down into our mortgage such that we met the downpayment percent required. Now we don’t have to pay PMI and we get 30K interest free for a year. (we will pay back the 30 K after the year or two or three ends by selling some CDs which are not up for another year.

By: Dan

Dan — Wed, 19 Apr 2006 17:02:39 +0000

Let me clarify that in our case, it wasn’t that we were stretching buy a house we couldn’t afford. My wife had been back in school (and out of the full time workforce) for a couple of years getting another degree, and so when she finished and we were searching for a house, monthly payments were not the issue because I crunched the numbers in advance and made sure our purchase would be well within our budget. The piggyback HELOC was just to help us put enough money down. We knew we’d be aggressive in paying down the HELOC, and two years later we’re just two payments away from wiping it out.

I agree that a piggyback mortgage is not a good idea if your sole purpose is to stretch to buy a bigger house. In an ideal world, saving 20% is the way to go.

But when you’re itching to get out of an apartment and are on pretty good financial footing but just need that last little bit to get you over the hump, a piggyback mortgage is a great alternative to PMI.

By: try2bekuber

try2bekuber — Wed, 19 Apr 2006 16:42:50 +0000

Another option to avoid PMI would be to roll in the PMI amount into the money that you get financed. While I am not sure if this has a downside, I hate to pay the higher interest on a piggy back loan, which is around 3% over prime.

By: Amanda

Amanda — Wed, 19 Apr 2006 16:16:23 +0000

I definately think waiting to save up the money is the best route. Buying a house you can’t afford is just too risky…

By: Brian

Brian — Wed, 19 Apr 2006 16:14:53 +0000

We took the 80/10/10 route to purchase our home, but if we had to do it all over again we would have waited until we had the full 20% to put down.

By: FMF

FMF — Wed, 19 Apr 2006 15:58:18 +0000

I saved the 20% needed, put it down on the house, and added extra mortgage payments. Seven years later, no debt.

By: Dan

Dan — Wed, 19 Apr 2006 14:02:41 +0000

I am very much against PMI. I think it’s a terrible waste of money and I’d much rather put that money to work for me. So we got an 80/10/10, with a HELOC providing that last 10%. We had every intention of paying it off very quickly, but my wife had just gotten back into the working world after getting another degree, so we couldn’t afford a big down payment. Plus it allowed us a little flexibility to make those “first home” purchases like some respectable furniture and appliances.

Then we went on a debt rampage and paid off a car, a school loan, and set our sights on the HELOC. In two months we’ll have that all paid off too, and it’s only been two years.

It’s highly unlikely we’ll ever be in the position of paying less than 20% down on a house ever again. But if we were, I’d do this all over again. Might as well put that money toward our own equity and not some useless thing like PMI.

By: Lisa

Lisa — Wed, 19 Apr 2006 13:48:29 +0000

Another note, using a HELOC will have an adjustable rate, but minimum payment is interest only. So, the good news is that if you have a bad month, you can squeak by only paying the interest. The other good news is that you have a line of credit that you can continue to borrow from should the need arise (not good for those of us trying to get out of debt). The bad news is, those interest rates are on the rise and you need to consciously make “greater than interest only” payments if you want to get ahead.

The HEL provides some flexibility in whether you go adjustable or fixed rate, but you will be forced to pay some of the principal every month with “fixed payments”.

By: Blaine Moore

Blaine Moore — Wed, 19 Apr 2006 12:59:44 +0000

One thing to note is that your piggyback mortgage tends to amortize faster, as well. We did an 80/4/16 loan, and the 4% mortgage is over 20 years instead of 30. This means you build equity faster.

Also, when you take out a loan like this, you still have private mortgage insurance. The difference is that your lender is paying for it, and you are not. That is another reason that the second mortgage tends to have a much higher rate.