Before committing to buying something expensive such as a home, you need to know everything about it to get the best deal. One of the cut short that you can make when purchasing a home is by taking a piggyback loan.
It’s an amazing opportunity to have if you desire to have your own housing without having to pay the full amount of deposit. You can use this loan as one of the solutions to get it.
What’s Piggyback Loan?
For short, piggyback loan definition, is a loan on top of your usual PMI loan. This means that not only do you can take Private Mortgage Insurance, you can take another loan to fill out the gap of money if you’re short.
The PMI is usually a twenty percent of the full amount of the house that you buy, which you have to pay upfront. This is the common practice that many insurance uses.
Even though it’s only one-fifth of the price, it’s still a lot. We’re talking about tens of thousands of dollars here. Most people can’t afford to have that much money all at once.
That’s where piggyback loan comes into play. By taking a piggyback loan, you will be released from the ten percent of the twenty that you have to pay which means that you only have to put it ten percent for your purchase. This will be a lot more reasonable to get.
Piggyback Loan Example
Things are a lot easier to understand if given examples, especially if we’re talking about money. The real-life example of the implementation of piggyback loan is this.
Let’s say you and your significant other want to purchase a home in a great neighborhood for the price of $150,000. The deposit is $30,000, which is a lot. If you only have $15,000 ready on your bank account, which means that you can apply for a piggyback loan to cover the other ten percent. Some even lend you fifteen percent.
It’s worth to notice that the interest that you get in piggyback loan is much higher than your actual mortgage. But don’t worry, most of the instances, you only have to pay the interest at least for the first ten years from the purchase.
If you use this policy, this loan is considered to be costless, in a sense of the overall cost. This is because you’re able to pay the principal a lot sooner by increasing the second loan, thus making you debt free a lot sooner with less money.
Are you planning to buy your dream house too, but don’t have the twenty percent that it takes to get there? A piggyback loan is the perfect solution for you. You can put down the deposit of the house that you want with only ten percent, or even five percent of the full amount. It’s such a steal!
Although, you can also get your dream house by the right saving planning and money management in just only a few years!
But, in the end, no matter what method you choose, hopefully, you can get the house that you want!