The 80-10-10 Piggyback Loan: Avoid PMI With This Strategy
A piggyback loan is a creative way to buy a home with less than 20% down while avoiding PMI. The most common structure is the 80-10-10 loan, which combines two mortgages and a down payment to sidestep private mortgage insurance.
How the 80-10-10 Works
The numbers refer to the loan structure:
- 80%: First mortgage covering 80% of the home’s purchase price.
- 10%: Second mortgage (home equity loan or HELOC) covering 10%.
- 10%: Your down payment.
Since the first mortgage covers only 80% of the value, it doesn’t require PMI.
Example Calculation
Home price: $300,000
First mortgage: $240,000 (80%)
Second mortgage: $30,000 (10%)
Down payment: $30,000 (10%)
Interest Rate Considerations
The second mortgage carries a higher interest rate — often 1%–2% more than the first mortgage. You must factor in both payments to compare total costs against simply paying PMI.
Pros of Piggyback Loans
- No PMI payment required
- Second mortgage interest may be tax-deductible
- You can pay off the second mortgage faster
Cons of Piggyback Loans
- Two loan applications and two closing processes
- Higher combined interest cost if second mortgage rate is high
- More complex financial management
Conclusion
The 80-10-10 strategy can save money compared to paying PMI, especially if you plan to pay off the second mortgage quickly. Compare total costs carefully before deciding.
