Buy the insurance -- not two loans

Hand signing mortgage next to house

If you put less than 20% down on a new home, you'll have to buy private mortgage insurance that protects the lender if you default.

To get around that, Realtors and mortgage brokers often recommend two loans -- a primary mortgage for 80% of the debt and a home equity loan for the remaining 20%.

The home equity loan acts as the down payment and negates the need for PMI.

These mortgages are commonly referred to as piggyback loans and this kind of financing made sense when home equity loans cost less than 5%.

But with interest rates now averaging 7.75%, most buyers will save by getting a single loan and buying PMI.

Premiums are about 0.5% of the outstanding principal but those payments are tax-deductible if the policy was taken out in 2007.

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