Accordingly, we set the minimum threshold at a 5 percentage point difference between the LTV and CLTV to infer the existence of a piggyback loan
In February 2006 -- when prices in Prince George's County were nearing their peak -- she put 5 percent down, and got a piggyback loan
to cover the rest of a 20 percent down payment.
Junior-lien loans can be taken out either in conjunction with the primary mortgage (a piggyback loan
) or independently of the first-lien loan.
A piggyback loan
is a combination of a first and second mortgage closed at the same time.
In the case of younger boomers, a planner needs to help clients decide whether to take out a piggyback loan
to avoid paying private mortgage insurance, according to Pearson.
If you have a piggyback loan
, you are going to get hit, again, with a higher capital requirement at the bank and a higher interest rate.
In the other alternative, the Piggyback loan
, the SBA lender will make a second position loan and arrange for a non-SBA lender to make the remainder of the loan in a secured first position.
Lenders were clearly aware of the piggyback loan
problem by the third quarter, when origination volume for securitized closed-end seconds dropped like a rock to $1.24 billion from $10.7 billion in the second quarter--an 88 percent plunge, according to Inside Mortgage Finance.
In the United States, if a borrower can't or doesn't want to make a 20 percent down payment, he or she generally has two choices: a piggyback loan
(taking out a second mortgage to cover the difference between the 80 percent first mortgage and the down payment) or mortgage insurance.
Figure 3 compares a piggyback loan
with an IO loan and a 30-year fixed-rate mortgage (FRM), both with mortgage insurance (MI), showing what would happen to each under a scenario of a two percentage point increase in the prime rate--not unlikely by any historical indicator.
uses 6% and a 30-year amortization on the first mortgage and 6% and 15-year amortization on the second mortgage.
Many of the borrowers with piggyback loans
found that the equity in their homes was negative, and the default rate on second mortgages soared.