Most banks require the borrower to purchase private mortgage insurance when granting one single loan over 80% of the purchase price. Piggyback mortgages are used as a way to avoid paying mortgage insurance (PMI).

Combo loans allow you to deduct the interest paid on your primary and second homes come tax time. Although private mortgage insurance is now tax deductible, there are income limitations. Therefore mortgages with PMI are not as appealing to many home buyers as Piggyback mortgages. Be sure to discuss any tax deductibility concerns with your accountant and loan officer.

A piggy back mortgage may actually help you lower your monthly payment. Loans with higher Loan To Values usually come with higher interest rates or PMI. Piggy Back mortgages may actually provide you with a lower interest rate and payment. Piggy Back loan rates when combined with first mortgage rates often have a blended rate which is lower than the same comparable 1 mortgage loan.

Besides avoiding Private Mortgage Insurance, Piggyback mortgages are also used to keep the first mortgage within the conforming loan amount. It 2006, the Fannie Mae conforming loan amount for single family homes is $417,000. Instead of paying the interest rate of a single Jumbo loan of $450,000, it may be benefitial to the home buyer to use piggyback loan program and break down the loan into two mortgages, the first mortgage of $417,000 and a second mortgage of $33,000.

You can get a piggyback mortgage from the same lender, but most lenders will allow for the second loan to be from a different lender, this may save you a lot of money.