Piggyback Mortgage

A piggyback mortgage is basically a loan that is made up of a combination of loans.

The main reason why home buyers take up such loans is because they want to pay as little down payment as possible.

In others words, as high a leverage as they are willing to.

For example, a lender might be able to offer a loan of 80% LTV when the desire of the borrower is to obtain a total loan amount equating to 90% LTV.

By taking on 2 loans instead of one, the borrower avoid a jumbo loan that comes with higher interest rates.

A common way to label these types of loans is:

  • 80-5-15
  • 80-10-10
  • 80-15-5

80-10-10 would refer to 80% first, 10% second, and 10% down payment.

Such loans are often structured with the 80% as a fixed rate mortgage, and the 10% as a home equity line of credit.

Sometimes the reason for getting a piggy back mortgage is to avoid private mortgage insurance (PMI).

In practice, home loans that exceed 80% loan to value demands that the borrower sign up for PMI.

As insurance premiums can be pricey and deemed to be unnecessary by the borrower, a method of avoid the PMI requirement is to take up a loan of 80% and sign up for a second to make up the excess.

Down payment mortgage for example, are a type of piggy back loans that provides a borrower with funds to use for down payment.