See: Piggyback Registration Rights.
A “piggyback mortgage” is an additional mortgage that we secure with the same collateral we used for the first mortgage. For those out there asking why on Earth anyone would want another mortgage when having just one can be stressful enough...well, there are a few reasons.
Let’s say Lena really wants to buy a house but doesn’t have enough cash on hand for a 20% down payment. Generally speaking, if we can’t put down the full down payment, we’ll have to pay something called mortgage insurance every month for several years. Mortgage insurance can get a little expensive, so Lena decides to go the piggyback mortgage route instead: she takes out an additional mortgage just to cover half of the amount of the down payment. Now she’s got two mortgages for one house…but she doesn’t have to pay mortgage insurance. So that’s nice.
Now let’s head across town to Adam’s place. He loves everything about his house…except for the kitchen. It’s old, it’s outdated, and it’s falling apart. He decides to take out a home equity loan so he can pay for the remodel he’s always dreamed of. And guess what? That home equity loan is also a piggyback loan. It’s another mortgage loan secured by the same collateral.
Do these additional mortgages come with a higher interest rate than the first loan? Most of the time, yes, they do. That can be a little bit of a bummer, but look at the bright side: if we can use piggyback mortgages to get our loan-to-value ratio below 80% (in other words, we’ll owe 80% or less of the overall value of our home), then we’re a lot more likely to get the loan amount—and possibly the interest rate on the first mortgage—that we really want.
Related or Semi-related Video
Finance: What is a Mortgage?345 Views
Finance allah shmoop shmoop What is a mortgage Well people
a mortgage is just dead it's alone but one with
special tax treatment For most people simply put Any interest
you pay on a mortgage to buy a home is
tax deductible Morty morton's inputs down a hundred thousand bucks
to buy a home that costs four hundred big ones
his mortgages three hundred grand at five percent interest per
year So that's fifteen thousand dollars a year he pays
to rent the money from the bank which he uses
to buy his dream home with the loop de loop
waterslide Morty earns one hundred grand a year and pays
tax on his last fifteen thousand of earnings soas faras
The irs is concerned since morty can deduct his fifteen
thousand dollars in interest against his earnings he does not
in fact earn taxable wages of one hundred grand annually
Instead he earns taxable wages of eighty five thousand dollars
a year Essentially with government is doing is sharing in
some of the cost of renting the money Taub i'm
ortiz home well why would the u s government be
so charitable Well because home ownership has been integral part
of the american dream since the u s of a
i po'ed in seventeen seventy six easy access to mortgages
and then home buying can be a hugely beneficial asset
In the vast majority of cases homes create family stability
a store of wealth and tax dollars for local schools
in the form of real estate taxes So don't feel
bad about splurging on that water slide there Morty Just 00:01:42.93 --> [endTime] remember you're doing it for the kids Hello
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