Home buyers who are unable to manage a 20 percent down payment should consider traditional private mortgage insurance instead of the piggyback loans that have become popular in the last few years, some financial experts are advising.

Piggyback loans have become popular because they enable borrowers to take out a first mortgage for 80 percent of the home price, eliminating the need for mortgage insurance. Lenders require mortgage insurance on deals where the loan-to-value (LTV) ratio is more than 80 percent.

Now, however, federal tax legislation signed by President Bush makes the insurance premiums fully tax deductible for borrowers who take out a new mortgage-insurance contract in 2007, provided they have $100,000 or less of adjusted gross income. The deduction phases out for borrowers with incomes between $100,000 and $109,000.

Borrowers who are trying to decide between a piggyback loan vs. mortgage insurance should consider mortgage insurance if the rate on the home-equity loan that covers the amount of the down payment is more than 2 percentage points above the rate on the primary mortgage, says Keith Gumbinger, a mortgage analyst with HSH Associates. But he advises borrowers to get help comparing the numbers before they make a decision.

Source: The Wall Street Journal, Ruth Simon (12/20/2006)

Categories: Buying, Bennington VT, First Time Buyers

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