What Is a Piggyback Loan (80-10-10)?
Buying a home often assumes one mortgage covers the whole gap between the down payment and the purchase price. A piggyback loan splits that job between two separate loans instead, structured specifically to sidestep one particular cost.
The short answer
A piggyback loan, commonly structured as “80-10-10,” splits a home purchase into a primary mortgage covering 80 percent of the price, a second loan (often a home equity loan or line of credit) covering 10 percent, and a cash down payment covering the remaining 10 percent. The main reason buyers use this structure is to keep the primary loan at or below 80 percent of the home’s value, which typically avoids the requirement to pay for private mortgage insurance.
Who this structure applies to
Piggyback loans generally come up for buyers who have a down payment somewhere below the 20 percent threshold that avoids mortgage insurance on a conventional loan, but who have enough income and credit strength to qualify for two loans simultaneously. It’s a more complex path than a single mortgage, so it tends to appeal to buyers with strong, well-documented finances who are specifically trying to avoid the added monthly cost of mortgage insurance rather than buyers stretching to qualify at all.
How it affects the monthly payment
Splitting the financing into two loans doesn’t eliminate a monthly cost, it restructures it. Instead of paying for mortgage insurance on top of a single mortgage payment, the borrower pays two separate loan payments — often at different interest rates, since the second loan (a home equity loan or line of credit) frequently carries a higher rate than the primary mortgage. Whether this ends up cheaper than paying mortgage insurance depends on the specific rates involved and how long the borrower expects to keep the loans, which is the same kind of trade-off calculation used when weighing discount points against a lower rate.
How it compares to a single loan with mortgage insurance
The straightforward alternative to a piggyback loan is a single mortgage with a smaller down payment, paying mortgage insurance until enough equity builds up to have it removed. That path is simpler — one loan, one payment, one set of underwriting requirements — while a piggyback structure means qualifying for two loans, potentially two closings, and two sets of terms to track. The appeal of the piggyback approach is that mortgage insurance payments generally don’t build equity or reduce principal, so avoiding them can sometimes save money over time, but the second loan’s own interest cost has to be weighed against that potential savings.
Where it fits in the underwriting process
Because a piggyback loan involves two separate loans, it typically means going through underwriting considerations for both, and the combined payments from both loans factor into the borrower’s debt-to-income ratio as a lender evaluates the full application. This added complexity is part of why piggyback structures are less common than a single conventional mortgage, even though they can make financial sense in the right circumstances.
A common mistake
A common mistake is focusing only on avoiding mortgage insurance without fully comparing the total cost of two loans against the total cost of one loan plus insurance over a realistic time horizon. Mortgage insurance on a conventional loan is often removable once enough equity builds up, while the second loan in a piggyback structure typically continues on its own separate schedule regardless of home value changes.
The takeaway
A piggyback loan is a structural workaround, not a universally better or worse choice than a single mortgage with mortgage insurance — it trades one type of cost for another. Because the math depends heavily on specific interest rates, how long the loans will be held, and individual financial circumstances, it’s the kind of decision that benefits from running the actual numbers rather than assuming one structure is automatically cheaper.