Can I use second mortgage payment instead of PMI?


If you are getting a first mortgage with LTV 80% or higher, you are demanded to pay private mortgage insurance. Many times a second mortgage payment used to be a very good substitute to a PMI payment. Piggyback or combo loans used to be very popular as second mortgage payment was added to the first mortgage and PMI was avoided.

However, nowadays the 80/10/10 loan and the like are not as popular as they used to be. If you are thinking whether to add a second mortgage payment and avoid PMI, or pay the PMI, you should consider the following:

Lenders may promote very good rates for a second mortgage, but you will be paying it for 10 or 20 years while you could request cancellation of PMI the moment your equity reaches 20% if you have not been delinquent on payments. PMI has to be dropped by the lender automatically when your loan balance reaches 22 or 23 percent of equity while you can't drop a second mortgage payment.

You'd better talk to a loan officer and use a mortgage calculator to find out if PMI or a second mortgage will benefit you better.

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