Is
It Time to Get Rid of Your Piggyback Mortgage?
 If
you have a piggyback mortgage and are wondering whether
now is the time for refinancing, we can help you determine
the answer.
A recent Wall Street Journal Online
article discussed the pros and cons of trading in a
“piggyback” mortgage in today’s market.
A piggyback mortgage “stacks a smaller home-equity
loan or line of credit on top of a primary mortgage,”
typically making the primary mortgage 80% of the home’s
cost and the second loan 10% to 20% of the cost. There
are also other varieties of piggyback mortgages, such
as 75%/15%/10%. These types of mortgages became popular
in the 1960s and have helped make home buying more feasible
for many people. They also helped fuel the recent boom
in the real estate market.
According to a Wall Street Journal Online/Harris
Interactive poll, 12% of homeowners now have piggyback
mortgages, which is 2% more than last year. Piggyback
mortgages also help homeowners avoid paying private
mortgage insurance, which can account for 0.5% of the
loan amount, or about $108 a month on a $250,000 mortgage.
With a piggyback mortgage, a homeowner does not borrow
enough with a single mortgage to trigger private mortgage
insurance.
If you are considering refinancing your
piggyback loan, you should consider that the current
market makes adjustable-rate mortgages (ARMs) unappealing,
as interest rates are steadily rising and would not
result in lower payments. Many lenders and real estate
experts are recommending that homeowners stick with
fixed-rate loans for now. You should also consider how
long you intend to live in your home. If you are planning
on moving within seven years, it probably doesn’t
make sense to refinance since closing costs will eat
up a lot of your upfront savings.
You also have to consider your local
housing market. Many regions have experienced dropping
home prices; if your region is one of them, you may
find that the small amount of equity you have built
up in your home has been wiped out. For instance, if
you paid $330,000 for your home and it is now appraised
at $300,000, the unpaid principal on your loan would
be worth more than your home, which would make refinancing
almost impossible. Additionally, many lenders are being
especially cautious right now due to current conditions,
so you may find trouble getting approved for refinancing
if there is little equity in your home.
If you find that refinancing both of
your loans into one fixed-rate loan does not make sense
for your situation, you still have options. For instance,
you can keep your current primary mortgage and just
refinance the second mortgage. One option may be to
refinance the second loan into a variable-rate home-equity
line of credit (HELOC), which would allow you to pay
the loan down more quickly, or borrow additional funds
if you need them.
Before deciding whether to trade
in your piggyback mortgage, consider your specific circumstances
and whether refinancing actually makes sense. Regardless
of what you decide to do, keep an eye on your finances,
your local real estate market and interest rates so
you can ensure you are always making the best choices
in relation to your mortgage.
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