Private mortgages like “piggyback” mortgages are back with a vengeance – but why? What the heck is a piggyback mortgage anyway? For years a single monolithic “jumbo” loan was the way to go, but now more and more borrowers are seeing that they can save big by going with 1 or 2 private mortgages instead of just one big conventional loan. Many save thousands of dollars in interest over the life of their mortgage, especially if they just don’t have the money for their down payment. Here we’re going to talk about how you can avoid the high down payments and usurious interest rates with a private mortgage instead.
What is Piggybacking?
When most people buy a home, they look for a single lender and a single mortgage – after all, it makes sense right? You wouldn’t want to end up with all that debt spread out across multiple lenders, and your bank is giving you a sweet deal, right?
Probably not. It’s been shown that lenders and financial institutions reserve the best deals for new customers – their current customers are already banking with them and making them money. But the CPA or cost per acquisition of a new customer tends to get them the better deals.
Instead of just getting one large loan from your lender, you can get two. One of these loans will help you get a larger down payment (capitalization) and look like less of a risk for the other mortgage you take out with another lender. You will have to work with two different lenders, but you’ll be able to have a lower interest rate and down payment across two mortgages than you would with one traditional jumbo loan.
What’s the Difference?
Jumbo loans cost more, period. A jumbo loan will, in general, cost about 1-2 points more in interest each year for the life of the loan. Smaller amounts of money borrowed usually give you a much lower interest rate.
If you do look into getting two mortgages instead of just the one, be careful. Some lenders will make you pay deferred fees if you pay off your mortgage early – they may also have penalties applied if you miss a late payment. But this is just another one of those reasons that you want to work with us!
Smaller loans also give you a higher LTV, or loan to value ratio. If you can get an 85% LTV across two loans, compared with 65% or less for a jumbo, you’ll be able to squeeze that much more value out of your equity in the long run.
It’s important to note that these are not bridge mortgages. Getting two mortgages to piggyback is a bit similar to a bridge mortgage, but you won’t have to worry about a fistful of lenders to deal with – just the two.
Have questions about your next mortgage or home equity loan? As Toronto mortgage brokers we help you look at a variety of lenders to understand which ones will be the right ones for you to do business with. It’s not hard to find a bad lender with a bad loan, but when you work with us you’ll find the one that’s right for you.