Piggyback Loan.
In plain English
A piggyback loan is a second mortgage you take out at the same time as your primary mortgage to fill the gap between your cash down payment and the 20% lenders like to see. It is often called an 80/10/10: the first mortgage covers 80% of the price, the piggyback second covers 10%, and you put down 10% in cash. The point is to avoid private mortgage insurance (PMI), which lenders normally require when you put down less than 20%. The tradeoff is a second loan that usually carries a higher interest rate and its own monthly payment.
01Why it matters
Done right, a piggyback can cut your monthly cost by replacing PMI with a small second loan, but it adds a second debt that often has a higher rate and may have a balloon or adjustable feature, so the math has to actually pencil out.
02The math, step by step
On a $400,000 home you put down $40,000 (10%). Your first mortgage is $320,000 (80%) and your piggyback second is $40,000 (10%). Because the first mortgage is at 80% of the price, you avoid PMI. You now make two payments: the main mortgage at its rate, plus the smaller second loan, which usually carries a higher rate set by your lender.
03What this is NOT
A piggyback is opened at purchase, at the same closing, specifically to avoid PMI. A home equity loan is borrowed later against equity you have already built up in a home you own.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice