Piggyback Loans are worth a look again!

As mortgage rates are surging, we are seeing a pause in most markets.  Those of us that have been through many cycles are now looking for ways to offer rate shocked clients solutions instead of feeding into their fears that buying a home may not be their best option today. 

Even though home prices have corrected in many markets over the buying frenzy from earlier this year, the media stoking fears of a GFC (Great Financial Crisis) part 2 is keeping clients from thinking clearly.  If rates are 3% higher than earlier this spring but home prices are 20% less than they would have paid with those lower rates, are they better off now?  Especially if they had to bid up to 105% of list price and pay cash just to get that home?  This question is going to be unique and different to each potential buyer of course.  But it must be asked.  As the industry professionals we owe it to our clients to give them their best options based on numbers and not fear.

One solution we are using is a Piggyback 2nd mortgage.  There are numerous applications for using two loans vs one loan and these loans have been around for more than 20 years but now that rates are no longer ultra low in my opinion they are worth a look. 

Sometimes this loan is used to avoid the Jumbo loan programs.  Sometimes those buyers looking to avoid PMI and put down less than 20% also choose two loans over one.  I also believe that since rates are much higher today than they have been in more than 20 years the chances that rates will come down sometime in the next 18-24 months is a very real possibility.  FNMA actually predicts rates back in the 4's at some point in 2023. 

That is why having a larger loan with a HELOC (20% down payment vs 30% down payment below as an example) that has an interest only option and that will go down if the prime rate drops can save money over the short term and long term and allow someone to buy with less cash out of pocket.  They will have the ability to wait for rates to drop and buy that home today before homes go back up if rates start to drop.  Below is an example of how this might look in today's market.