Question:
Can I use a piggyback mortgage as an alternative to private mortgage insurance (PMI)?

Answer:
If your down payment is less than 20 percent of the purchase amount when you buy a house, the lender will likely require that you buy PMI to ensure repayment of the loan. PMI premiums can significantly increase your monthly housing costs, and are no longer tax deductible (as of 1/1/2014). To avoid paying monthly PMI premiums, you may want to consider getting a piggyback mortgage, sometimes called an 80-10-10 mortgage. In a piggyback transaction, a bank or other finance company traditionally lends 80 percent of the purchase price, and the buyer makes a down payment of 10 percent. The remaining 10 percent is financed with a second mortgage. The interest rate for the second mortgage is usually significantly higher than for the primary loan. Keep in mind that some second mortgages require a balloon payment of all the outstanding principal at the end of the term, and that you may not be able to take out further mortgage loans until the piggyback mortgage is paid off.

You might also consider some of the alternatives to both piggyback mortgages and PMI. If you have built a good relationship with your current financial institution, it may approve a portfolio loan for you. A portfolio loan is one that the lender keeps in-house rather than selling, so the lender may waive PMI, depending on your financial history. Another alternative is to find a lender that offers a slightly higher-than-market interest rate in exchange for waiving PMI. However, you will end up paying the higher interest rate for the life of the loan.

Source: Broadridge Investor Communication Solutions, Inc.
Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Neither Canandaigua National Bank & Trust nor its affiliated Companies provide tax, legal, or accounting advice. Please consult your personal tax advisor, attorney, or accountant for advice on these matters.