What makes piggyback loans beneficial to home buyers? Why would a recast be more advantageous for you?
A piggyback loan is when you take out a single loan for 80% of the home’s value and either 10% or 15% of the remainder to purchase the home. It’s usually either an 80/10 or 80/15/5 split.
Structuring the loan this way usually makes sense when you’re very close to the $417,000 conforming loan limit. There are definitely better ways to structure this if possible, though. I say this because when you structure it with the first and second lien, the interest rate on that first lien is quite a bit higher than it would be otherwise.
If the loan amounts cooperate, most of our clients actually structure this with a single loan, pay the private mortgage insurance, and then pay the loan down in either a lump sum payment as a result of the sale of another property, or with accelerated principal payments throughout the loan so that the mortgage insurance drops off.
At that point, they can then contact us to recast the loan so it acts as a retroactive down payment. What happens, then, is you end up at the same place as if you structured the loan with the first and the second lien. The difference is by structuring it with a single loan with mortgage insurance and throwing in a recast there, you end up with a lower interest rate over the life of the loan, which ends up saving you quite a bit of money.
If you find yourself in a unique situation and you want to talk through it with me and my team, just give us a call or send us an email. We’d be more than happy to help.