Loans
Piggyback Loan
A strategy where you take out two loans simultaneously to avoid paying private mortgage insurance. The most common structure is an 80/10/10: an 80% first mortgage, a 10% second mortgage (home equity loan), and a 10% down payment. This keeps the first mortgage at 80% LTV, eliminating the PMI requirement. While you avoid PMI, the second loan typically carries a higher interest rate, so run the numbers to see which approach costs less overall.
Why It Matters
Piggyback Loan is a concept every mortgage borrower should understand before signing loan documents. The terms of your mortgage — including factors like piggyback loan — directly determine your monthly payment, total interest paid, and financial flexibility for the next 15-30 years. Taking time to understand these terms puts you in a stronger negotiating position with lenders.
When evaluating loan offers, ask your lender to explain how piggyback loan affects your specific loan scenario. Get it in writing on your Loan Estimate form, and compare how different lenders handle piggyback loan — the differences can save or cost you thousands over the life of your mortgage.
Real-World Example
For a typical $300,000, 30-year mortgage at 6.5%, understanding piggyback loan can help you evaluate whether you're getting the best possible terms. Even small variations in loan terms translate to significant dollar amounts over 360 monthly payments.
Pro Tip
Before your loan closes, make sure you fully understand how piggyback loan works in your specific mortgage. Ask your loan officer to walk through it — they're required to explain every term on your Closing Disclosure.