It is a hard truth that most people never see financial stress coming up ahead. There are many ways to get out from under a financial crash, but one of the most efficient ways to deal with the situation is to take out a mortgage. Mortgages allow property owners to get a large sum of money in exchange for a share of the equity.
The best thing is that one individual can take out multiple mortgages on the same property. These succeeding mortgages are called junior mortgages, and these have a number of unique features. One of the most common forms of a junior mortgage is a piggyback mortgage, which is taken out on the same property mortgage. The interest rates on such loans are slightly higher than senior mortgages. However, depending on the financial ability of the individual, a piggyback mortgage is well worth the hike in interest. It is, of course, advisable to consult a financial expert before taking out such a loan, but it is important to note that anyone can take out a piggyback mortgage loan.
Salient features of piggyback mortgages
There are some very important features of piggyback mortgage loans that distinguishes them from a traditional senior mortgage. Depending on the financial capabilities of the borrower, these features may be interpreted as either good or bad.
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Listed below are some of the most salient features of any piggyback mortgage.
- Tax benefits: The biggest plus point for any piggyback mortgage is that it is fully tax deductible. Every time the borrower takes out another mortgage loan on the same property, the tax rate is adjusted with that of the senior mortgage loan.
- Higher interest rates: It is a known fact that in the event of a mortgage defaults and the property is sold off to absolve the debt, the senior mortgage is paid off before the piggyback mortgage. Due to this inherent risk, all junior loans including piggyback loans carry a higher rate of interest on them compared to the senior mortgage.
- Flexibility: A piggyback mortgage can make it easy to meet any financial need. The flexibility arises from the fact that these mortgages are generally taken out for a smaller sum than the first mortgage. This makes it ideal to use piggyback mortgages for different purposes.
Reason why piggyback mortgages are so popular
Piggyback loans are quite easy to apply for, as the property being mortgaged has already been audited, evaluated, and approved. For this very reason, people usually do not mind the higher interest rates on piggyback loans. In addition, the mortgage can be used to meet a number of requirements including renovation, reconstruction, and even for personal reasons. More often than not, the purpose of having a mortgage is also to avail of tax benefits. The best way to approach a piggyback loan is via a financial institution that has already accommodated the first mortgage on the same property. For these reasons, piggyback mortgages are extremely popular.
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