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Piggyback Loan

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A piggyback loan is a second mortgage used to add to the first mortgage on a home for which you need to finance more than 80 percent. It "piggybacks" onto the first mortgage simultaneously. This first mortgage covers 80 percent of the home's price. The piggyback loan then covers the remainder of the financing. A common type of piggyback loan is the 80-10-10, which has a 10 percent down payment and a 10 percent piggyback loan. A significant advantage of a piggyback loan is that it does not require you to carry private mortgage insurance (PMI). Instead of paying a PMI premium, the extra payment for the piggyback loan builds equity. The interest on a piggyback loan is generally higher than the rate on the first mortgage, but a piggyback loan sometimes costs less than a single mortgage for over 80 percent that also requires PMI. So, stacking the small mortgage of a piggyback loan can significantly reduce a borrower's monthly payments. Additionally, piggyback loan payments are also tax deductible.



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