2nd Mortgage Rates Higher, includes PMI
So you’ve gone the route of a piggyback mortgage to avoid PMI, but you see that the interest rate on your piggyback (2nd) mortgage is higher than your first, what gives? Well, while you’ve avoided paying PMI, your lender still has to get it themselves because they need protection against you defaulting on your loan - that’s why the 2nd mortgage interest rate is higher.
So why is a piggyback better than just asking your lender to increase the rate on your first mortgage? It’s better because your second mortgage is smaller so if you were to prepay, you can close out this loan faster than the larger first mortgage.
One other “gotcha” you should look out for is whether your 2nd mortgage is variable or fixed rate. My 2nd was a fixed rate at 7.5% (for comparison, my first mortgage was 5.75%) but many folks have a variable (i.e., adjustable) rate on their second mortgage which is dangerous is our rising rate environment. Just something ot keep an eye out for.
This entry was posted on Wednesday, April 19th, 2006 at 7:19 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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