Piggyback Loan
A second mortgage taken simultaneously with the first mortgage to avoid PMI or cover a down payment gap.
What is Piggyback Loan?
A piggyback loan is a second mortgage taken out at the same time as the primary mortgage, with both loans closing simultaneously. The most common structure is the 80-10-10: the borrower finances 80% with a first mortgage, 10% with a piggyback second mortgage (typically a HELOC or home equity loan), and provides 10% as a cash down payment. This structure allows buyers to avoid private mortgage insurance (PMI), which is required when the first mortgage exceeds 80% of the home's value. Piggyback loans were widespread before 2008 and contributed to the housing crisis, as 80-20 piggybacks (first mortgage 80%, second 20%, no down payment) allowed buyers to purchase homes with no equity. After the financial crisis, stricter underwriting standards limited these loans, but they remain available in some form for qualified borrowers.
Example
A buyer purchasing a $400,000 home with only $40,000 saved structures a piggyback to avoid PMI: a $320,000 first mortgage (80%), a $40,000 home equity loan (10%), and a $40,000 cash down payment (10%). Monthly savings from avoiding PMI of ~$150/month can offset the higher rate on the second loan over time.