What it means
Lenders usually want a down payment of 20% of the home's price. If the buyer puts down less, the lender typically requires mortgage insurance on the main loan, which adds to the monthly cost.
A piggyback loan fills the gap: the first mortgage is capped at 80% of the price, a second loan covers part of the rest, and the buyer provides the remainder in cash. In the 80-10-10 structure, the first mortgage is 80% of the price, the second loan is 10% and the buyer's own down payment is 10%.
Other splits exist, such as 80-15-5, where the buyer puts down only 5%. The second loan is often a home equity loan or a line of credit, and it commonly carries a higher interest rate than the main mortgage.
The advantages are the avoidance of mortgage insurance, the chance to keep the first loan below limits that trigger higher pricing and a smaller cash requirement than a 20% down payment. Mortgage insurance is also not always cancellable quickly, whereas a second loan can be repaid early.
In some cases, the interest may offer tax advantages, which depend on local rules. The drawbacks are real.
Two loans mean two sets of fees, a second payment to manage and a rate on the second loan that may be variable and could rise. With only a small down payment, the buyer has little equity, so a fall in house prices could leave the loans larger than the home's value.
The arrangement became less common after the global financial crisis, when lenders tightened standards and many reduced the availability of high loan-to-value second loans. Availability, terms and costs vary by lender and country, so buyers should compare quotes on both options.
The decision depends on the actual cost of mortgage insurance versus the cost of the second loan. It is wise to model the total monthly payment for both approaches, including insurance, interest and fees, and to test the result against a possible rise in the second loan's rate.
A buyer who cannot afford the higher payments in a bad scenario should consider a cheaper home or a larger down payment.
In practice
Real-world examples.
Example
A young couple buying a $350,000 home has savings of $35,000. They take a first mortgage of $280,000 and a second loan of $35,000, which avoids mortgage insurance on the main loan.
Example
A buyer compares the cost of mortgage insurance with that of a second loan. She calculates that the insurance would cost $150 a month on a $360,000 loan, whereas the second loan would cost more in interest in the first years but could be repaid quickly from a bonus.
Example
A homeowner in a rising market uses a piggyback structure to buy before prices climb further. A year later, the loan-to-value ratio is lower because the home has gained value, and she refinances to combine the loans.
Formula
Calculation
First mortgage = 80% x purchase price
Second loan = second loan percentage x purchase price
Down payment = purchase price - first mortgage - second loan
Suppose a buyer purchases a home for $400,000 using an 80-10-10 structure. The first mortgage is 0.80 x 400,000 = $320,000. The second loan is 0.10 x 400,000 = $40,000. The buyer's down payment is 400,000 - 320,000 - 40,000 = $40,000. Combined loans total 320,000 + 40,000 = $360,000, or 90% of the price.Case study
Seen in the real world.
Fairhaven Homes Advisory is an illustrative, fictional mortgage broker. A client, Maya, wanted to buy a $500,000 apartment but had only $50,000 saved, which is a 10% down payment.
The broker modelled two options: a single $450,000 loan with mortgage insurance, and a piggyback structure with a $400,000 first mortgage and a $50,000 second loan. The insurance route cost less per month in the early years, but the piggyback route had no insurance and would allow her to repay the $50,000 loan early using a work bonus.
Maya chose the single loan because her income was steady but her savings buffer was thin, and the broker warned that a rate rise on the second loan could strain her budget. The illustrative lesson is that the cheapest-looking structure on day one is not always the safest.
Watch out
Common mistakes.
- Comparing only the headline interest rates, without including mortgage insurance, fees and the second loan's rate adjustment.
- Ignoring the risk that the second loan's variable rate could rise, which can lift monthly payments sharply.
- Stretching to buy with a very small down payment, which leaves little protection if house prices fall.
Questions
People also ask.
What does 80-10-10 mean?
It means a first mortgage for 80% of the price, a second loan for 10% and a down payment of 10%.
Why do buyers use a piggyback loan?
Mainly to avoid private mortgage insurance and to reduce the cash needed up front.
Are piggyback mortgages still available?
Availability depends on the lender and the market, so buyers should check current offers and compare the total cost with a single loan.
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