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TERMINOLOGY
A piggyback mortgage loan has often been used to avoid paying private mortgage insurance (PMI). PMI can amount to extra unnecessary money that you pay each and every month. With a piggyback mortgage, you are actually taking out two loans at once. For example, you might get one loan for 80 percent of the value and another for 20 percent. While it can help, there are a few risks that you should consider.
1. No Equity
With these types of loans, it makes it easier for buyers to get into a house with no down payment. This can be dangerous if your property value falls and you become upside down on the loan. This makes it impossible to sell or refinance the house, as you would have to come up with money to make up the difference.
2. High Interest
The interest amount on the smaller loan is often much higher than the larger loan. Therefore, you are losing some of the savings from not paying PMI by paying higher interest.
3. More Opportunity for Mistakes
Keeping up with one mortgage payment is difficult enough. When you have a second loan, it makes it even that much more difficult to keep up with. If you forget your payment it can cause you late fees and affect your credit.
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