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Major Private Mortgage Insurance (PMI) Options





Bankrate's Amy Buttell Crane explains that there are three options when you cannot pay 20% of home price as downpayment. Obviously, piggyback loan is usually a better (read: cheaper) option than the other two.

From Bankrate:

• Borrower-paid PMI. The traditional type of PMI. The loan premium is added to the mortgage payment and the mortgage company transmits the PMI payment to the insuring company.

• Lender-paid PMI. The payments are wrapped into the overall loan rate so you don't make a separate PMI payment. Instead, you pay a higher interest rate and the lender pays a portion of your overall payment to the insuring company. The advantage of this type of PMI is that you can deduct the mortgage interest from your taxes. PMI isn't deductible.

• Piggyback loan: Named because a second mortgage is "piggybacked" onto the original mortgage loan, a piggyback mortgage is a second mortgage that closes simultaneously with the first. There are variations, but a popular product is the 80-10-10 loan, where the consumer takes out an 80 percent first mortgage, thus avoiding PMI, a 10 percent second mortgage and pays 10 percent as the down payment.

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