Does a piggyback loan save money?

It depends on the rate on the second mortgage. Piggyback loans save money when the combined cost of the second mortgage interest is less than what you would pay in PMI over the time until PMI cancels. For borrowers with good credit paying 1 percent or less in PMI, a piggyback can actually cost more.

Are piggyback loans still available?

Yes. Piggyback loans became less common after 2008 but are still widely offered, especially as HELOCs. Lenders that specialize in piggyback loans typically require good credit (680 plus) and solid income documentation.

Piggyback Loan Calculator (80-10-10)

Q: What is a piggyback loan?

A piggyback loan is a second mortgage taken out at the same time as your primary mortgage to avoid PMI. The most common structure is 80-10-10: an 80 percent first mortgage, a 10 percent second mortgage (usually a HELOC), and 10 percent down. Because the first mortgage is at 80 percent LTV, PMI is not required.

Compare an 80-10-10 piggyback loan against a conventional loan with PMI to see which saves you more money.

80-10-10 and variants Break-even horizon Full lifetime cost

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Your Scenario

Home price

Total down payment

Classic structure is 80-10-10 (10% down, 10% second mortgage).

First mortgage rate

Second mortgage rate

First mortgage term

Second mortgage term

PMI rate (for comparison scenario)

Annual PMI rate if you took the single-mortgage path. Use our main calculator to look up yours.

Years until PMI would cancel

years

Piggyback vs. PMI

Monthly savings (piggyback vs. PMI)

Piggyback monthly payment (1st + 2nd)

Single-mortgage + PMI monthly

Total cost over PMI horizon (piggyback)

Total cost over PMI horizon (PMI path)

Verdict

What is a piggyback loan?

A piggyback loan is a second mortgage opened at the same time as your primary mortgage, used to cover part of the down payment or to keep the first mortgage below 80 percent of the home value so that PMI is not required. The most common structure is called "80-10-10":

80: An 80 percent first mortgage, below the LTV threshold that triggers PMI.
10: A 10 percent second mortgage (usually a HELOC or fixed-rate home equity loan).
10: A 10 percent cash down payment from the buyer.

Variants include 80-15-5 (5 percent down, larger second), 80-5-15 (15 percent down, smaller second), and 75-15-10 (for jumbo territory). The common thread is keeping the first mortgage below 80 percent LTV.

How piggyback math works

The piggyback strategy wins when the extra interest you pay on the second mortgage is less than the PMI you would have paid. The second mortgage rate is almost always higher than the first mortgage rate (because it is in second lien position and higher risk), so the question is whether that spread times 10 percent of the loan beats the PMI premium times 90 percent of the loan.

For borrowers with excellent credit (760 plus) paying 0.3 to 0.5 percent in PMI, piggyback loans often lose. For borrowers with mid-range credit (680-720) paying 0.7 to 1.5 percent in PMI, piggybacks often win. The calculator does this comparison with your actual numbers.

Pros and cons of a piggyback loan

Pros

Avoid PMI entirely, which can save thousands over the first several years.
Interest on the second mortgage may be tax deductible if used to buy the primary residence (subject to the 2017 Tax Cuts and Jobs Act $750,000 total mortgage debt cap). Consult a tax professional.
Smaller first mortgage keeps the main payment lower.
Easier to pay off the second mortgage early (no cancellation request process).

Cons

Second mortgage rate is typically 2 to 4 percent higher than the first.
If the second mortgage is a HELOC, the rate is variable and can increase.
Two sets of closing costs on two loans.
More complex underwriting (two approvals required).
Second mortgage balance must still be paid eventually, often requiring refinancing later.
Reduces home equity cushion if home value drops.

When does a piggyback make sense?

A piggyback loan is most attractive when:

You have at least 10 percent to put down (otherwise lenders rarely offer piggybacks).
Your credit score is 680 or higher (good enough for a competitive second-mortgage rate).
Your PMI would be at least 0.6 percent annual rate (lower rates make piggybacks less attractive).
You plan to pay off the second mortgage within 5 to 10 years, through principal payments or refinancing.
You can comfortably handle two mortgage payments.

Alternatives to a piggyback loan

A piggyback is not the only way to avoid PMI. Also consider:

Save for 20% down. The simplest option. Takes longer but is risk-free.
Lender-Paid PMI (LPMI). Lender pays PMI upfront in exchange for a higher mortgage rate (usually 0.25 to 0.75 percent higher). See LPMI vs BPMI.
VA loan if you are eligible (no PMI, one-time funding fee instead).
USDA loan for rural properties (no PMI, 1% upfront + 0.35% annual guarantee fee).
Doctor loans or similar professional loan programs that waive PMI with low down payment.

Frequently asked questions

What interest rate should I expect on the second mortgage?

Second mortgage rates vary widely by credit score and type (HELOC vs. fixed home equity loan). As a rough guide at the time of writing, fixed second-mortgage rates run 2 to 4 percent higher than conforming first-mortgage rates, and HELOCs run 3 to 5 percent higher since they are indexed to prime. Shop at least three lenders.

Can I use a HELOC as the second mortgage?

Yes, this is very common. HELOCs typically have variable rates tied to the prime rate. Many borrowers like them because you can pay down and re-borrow during the draw period. The downside is rate risk if prime rises.

Will the first mortgage lender approve a piggyback?

Yes, most do, but they will underwrite both loans together and look at your combined debt-to-income ratio. Some lenders offer both loans themselves to streamline the process.

What happens if I need to sell before paying off the second?

Both mortgages must be paid off at sale. The first lien gets paid first from sale proceeds, then the second. If your home value has dropped, you may need to bring cash to closing to cover the shortfall.

Is a piggyback loan the same as a bridge loan?

No. A piggyback is permanent financing for the home you are buying. A bridge loan is short-term financing to use equity in your current home to buy a new one before selling the current one.