MICA: Mortgage Insurance Beats 'Piggyback' Option.(Brief Article)

For many typical homebuyers, a single mortgage with mortgage insurance that can be canceled makes more sense than "piggyback" loan deals, according to a trade group that represents private mortgage insurance firms.

"Piggyback" loan deals typically combine a first mortgage at favorable market rates with a higher rate second to allow borrowers to finance the purchase of a home without mortgage insurance even though the total loan-to-value ratio normally would require this.

The Mortgage Insurance Co.'s of America claims that some loan originators have been promoting "split" loan structures, sometimes creating an 80-10-10 loan, "without mentioning the downsides of this option."

In an 80-10-10 loan, the homebuyer makes a 10% downpayment, borrows another 10% through a second mortgage with a higher interest rate, and finances 80% through a conventional mortgage loan.

Alternatively, a homebuyer could put down as little as 3% (and less under some special programs) with private mortgage insurance. Once the homeowner achieves an 80% loan-to-value ratio, the private MI can be cancelled, MICA notes.

"When comparing costs between a single mortgage loan with private MI and a first and second trust in an 80-10-10 structure, the loan with private MI is, in most cases, less costly to the borrower over the life of the loan," said Suzanne Hutchinson, MICA executive vice president.

According to a MICA comparison: