Why Private Mortgage Insurance Could Save You a Bundle Over Piggyback Florida Home Loans

Here’s the bottom line: You can take advantage of lower monthly payments on a Florida mortgage loan with mortgage insurance, rather than a piggyback loan.

Here’s the basis for such a development: Mortgage insurance has become competitive with piggyback Florida home loans due to a pair developments:

1. First, short-term interest rates rose during the Federal Reserve’s two-year rate-hike campaign. As a result, rates increased on the Florida home equity loans and the lines of credit that piggyback mortgages use.
2. Second, mortgage insurance companies started pushing single-premium policies that could be financed as part of the loan.

Overall, the smaller your down payment, the more likely you are to default on the Florida home mortgage and, thereby, cost the lender money and strife. The loan is considered risky if the down payment is less than 20 percent. One solution is mortgage insurance.

Advantage to the lender

The borrower may pay for private mortgage insurance, but the lender is the beneficiary. Mortgage insurance reimburses the holder of the loan for foreclosure-related expenses such as missed payments, attorney fees and house repairs.

How much does it cost? The figure varies depending on the size of the down payment and the borrower’s credit history. It can be expensive, so the mortgage industry devised a way around it: piggyback loans.

With a piggyback, the borrower splits the financing in two: a primary mortgage for 80 percent, and then a Florida home equity loan or credit line for 20 percent minus the down payment. Structuring a loan this way eliminates the requirement for mortgage insurance.

Two or three years ago, when you could get a home equity line of credit at 4 percent or 5 percent, piggybacks were almost always cheaper. Now, however, the average line of credit carries a rate above 8 percent, while the average home equity loan is a shade under 8 percent. Moreover, rates on credit lines and equity loans usually run a little higher on piggybacks. B

For this reason, we can reiterate the point we made above:: Piggyback Florida mortgages have higher monthly payments than they used to, while mortgage insurance costs the same.