Question:

Are 80/15/5 mortgage rates still better than when getting a standard loan with mortgage insurance?

Answer:

The idea behind the 80/15/5 mortgage loans is to get better rates than when getting a mortgage insurance. The 80/15/5, also called a piggyback loan, is structured as follows: 80% first mortgage, 15% equity line or second mortgage and 5% down payment. The numbers in the piggyback loan should add up to 100.

Loans with LTV of and higher than 80% require mortgage insurance, and as mortgage insurance depends on the LTV and the credit score it can be quite costly. However, loans with LTV of 80% and higher are considered risky, borrowers are deemed default-prone and mortgage insurance is demanded by all lenders. This is how piggybacks came around in borrowers' attempt to avoid paying costly mortgage insurance.

Up until several years equity lines had rates of 4-5 percent and often a piggyback came cheaper than getting a private mortgage insurance. However, equity lines are now reaching 8%, and mortgage insurance have stayed the same. So, now, before you make a choice between a first mortgage with mortgage insurance and a piggyback, you should do some math. Unlike in the recent past piggybacks will not necessarily have lower monthly payments.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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