What is a Piggyback Mortgage Loan?

A piggyback mortgage loan, which is also referred to as an 80-10-10s or 80/20 mortgage loans, is used when a borrower does not have the required 20 percent down payment available to buy a home. Most lenders require a borrower to come up with a down payment that is equal to 20 percent of the home's value, giving the home an 80 percent loan to value. In cases where the borrower does not have the required down payment, the lender will require that private mortgage insurance (PMI) be taken out in order to protect the lender against loan default.  

Private mortgage insurance, or PMI, protects the interest of the lender against loan default by the homeowner. When the home's loan to value reaches 80 percent or below, the PMI requirement is eliminated for conventional loans.

Piggyback Loan Eliminates PMI Requirement

With a piggyback loan, the borrower eliminates the need for PMI. The loan reduces the down payment requirement to 10 percent of the home's value from the traditional 20 percent. In some cases, lenders will extend a 15 or 20 percent loan for the second mortgage.

Piggyback loans have a slightly higher interest rate than the original loan, usually within 1 to 2 points. The increase in rate and costs is established to protect the lender against default.