This is a popular way to avoid Private mortgage insurance or PMI. A Piggyback loan is where you can take 80% of the purchase price and put it on a traditional mortgage and take the remaining 10% and place it on a second mortgage. Although your second mortgage may have a slightly higher interest rate you may save in the long run because now all of your loan will be tax deductible and if you pay off your second mortgage early, you will dramatically lower your monthly payment.
This option for avoiding PMI was a response from the mortgage insurance industry because of the great amount of homebuyers choosing the above piggyback loan instead of PMI. With this option your monthly payments can be lowered to the same monthly payments as if you obtained a piggyback loan.
These loans will carry a higher interest rate but will not require you to pay the private mortgage insurance premium. What happens is that you still have PMI on your loan but the mortgage company picks up the tab and gives you a higher interest rate.
Deciding what option to choose entirely depends on your financial situation. One option may work better than the other in overall savings so if you are deciding to try one of the options to avoid PMI, it is best to get out the calculator or ask your loan officer to see what will work best for you.
