What is a Piggyback Loan?
A piggyback loan strategy combines two mortgages for the purpose of buying or refinancing a home. Borrowers often use a piggyback loan to avoid paying private mortgage insurance on a conventional loan when they’re putting down less than 20%. You can also use a piggyback loan to reduce your down payment or buy a high-priced home without taking out a jumbo loan.
While piggyback financing can serve you well in the right circumstances, it does come with risks. Before pursuing a piggyback loan, learn how this type of financing works and whether it fits your situation.
- A piggyback loan strategy uses two mortgages — one traditional mortgage and an equity-tapping second mortgage — to finance your home purchase or refinance.
- Piggyback loans can help you avoid a jumbo loan, reduce how much cash you need upfront or allow you to side-step PMI. But the higher-rate second mortgage and added fees can raise your overall costs.
- Piggyback loans can be tougher to qualify for, and won’t pay off unless you stay in the home long enough to see savings that outweigh the added costs and fees involved.
How do piggyback loans work?
Piggyback loans are a way to buy or refinance a home using two mortgages simultaneously. The first, or primary, mortgage covers the bulk of the total borrowed amount. The second mortgage (or “piggyback” loan) finances a smaller portion. The second mortgage is typically a home equity loan or home equity line of credit (HELOC). You, the homeowner, then cover the remaining portion of the home price with a down payment.
Here’s how it could look for a borrower who wants to buy a $400,000 home:
- Primary loan (80%): $320,000
- Second mortgage (10%): $40,000
- Out-of-pocket down payment (10%): $40,000
- Total down payment (20%): $80,000
For a more in-depth look at the numbers behind a piggyback loan, jump to our piggyback loan versus traditional mortgage example below.
How it works when you want to avoid PMI
Typically, borrowers have to pay for private mortgage insurance (PMI) if they put down less than 20% when taking out a conventional loan. The piggyback financing strategy allows you to avoid that extra PMI cost because it uses the second mortgage to fill in the remaining down payment amount.
However, it won’t work with loans backed by the Federal Housing Administration (FHA), since they always require you to pay FHA mortgage insurance.
How it works when you want to avoid a jumbo loan
Some borrowers leverage piggyback loans to purchase a home that’s priced above conforming loan limits. The primary mortgage remains within conforming loan limits, while the rest of the purchase price is shared between the second mortgage and your down payment. By spreading the cost of the home across two separate loans, you can avoid the higher interest rates and stricter guidelines of a jumbo loan.
How it works when you want to reduce your down payment
A piggyback loan can reduce your out-of-pocket down payment, since the second mortgage covers a portion of the down payment. This strategy can help you buy a home without draining your savings, or allow you to purchase a more expensive home without contributing a hefty down payment amount. This way, you can hold on to your cash for emergency savings or other financial goals.
Monthly cost comparison: Piggyback loan vs. traditional mortgage
Let’s imagine a homebuyer who makes a 10% down payment on a $400,000 house. They can either finance the remaining amount with a single traditional mortgage or a piggyback loan.
In this example we’ll use a 80-10-10 piggyback loan, which means the primary mortgage finances 80% of the purchase price, the second mortgage covers another 10% and they make a 10% down payment. Here’s how the two options compare:
| Piggyback loan strategy: 30-year fixed-rate mortgage and 30-year home equity loan | Traditional mortgage strategy: 30-year fixed-rate mortgage | |
| Out-of-pocket down payment | $40,000 | $40,000 |
| True down payment | $80,000 | $40,000 |
| First mortgage principal balance | $320,000 | $360,000 |
| First mortgage monthly payment (including PMI)
Calculated using a 6.19% interest rate and $188 per month PMI payment
| $1,958 | $2,390 |
| Second mortgage principal | $40,000 | $0 |
| Second mortgage monthly payment
Calculated using a 6.92% interest rate.
| $264 | $0 |
| Total monthly housing payment: | $2,222 | $2,390 |
Note: The above figures do not include property taxes or homeowners insurance.
In this example, using a piggyback loan strategy would actually save you $168 a month because it allows you to avoid making PMI payments. But keep in mind that lower monthly payments don’t always mean lower total borrowing costs over time.
What else to consider: Break-even points, PMI timelines and total loan costs
A piggyback loan can lower your monthly payments, but you need to compare total costs over the time you expect to own the home to truly know which loan strategy will save you money. Here are three key factors to understand:
- The break-even point. Whether a piggyback loan saves you money right away or only over time depends on the size of the second loan, its interest rate and how expensive PMI would be.
- The PMI timeline. In some cases, a piggyback loan can lower monthly payments right away, just by eliminating PMI. In other cases, going with a piggyback strategy may initially cost more, but will eventually pay for itself. That’s because the gap between how much PMI would cost versus the piggyback costs can shrink over time as the second mortgage balance declines (while PMI would have remained unchanged).
- The total loan costs. A piggyback loan is more likely to make sense if you plan to stay in the home for at least three to five years. That’s often how long it takes for the monthly savings from avoiding PMI to outweigh the higher interest and closing costs on the second mortgage.
Step-by-step: Piggyback loan vs. PMI (break-even calculation)
Use these steps to estimate when a piggyback loan might pay off compared to a traditional mortgage with PMI.
- Take your loan amount and multiply it by your annual PMI rate (often 0.58% to 1.86%).
- Divide by 12 to get your monthly PMI cost.
Example:
$360,000 loan × 0.63% ÷ 12 = $188 per month in PMI
- Look at the monthly payment on the piggyback loan.
- Focus mainly on the interest portion, especially in the early years.
Example:
$40,000 second mortgage at 6.92% = $264 monthly payment, with about $230 going to interest early on.
Subtract the piggyback loan’s interest from the PMI you avoid.
Example:
$188 PMI avoided – $230 piggyback interest = PMI is initially cheaper by $42 per month
Keep in mind that, over time, this gap will narrow as the piggyback loan’s balance drops.
Include closing costs on the second mortgage, often 2% to 5% of the loan amount.
Example:
$40,000 piggyback loan = approximately $1,400 in closing costs.
Divide the upfront costs of the piggyback loan by the initial monthly cost difference between PMI and piggyback loan interest.
Example:
$1,400 upfront costs ÷ $42 initial monthly cost difference = 33 months (2.8 years) to break even
Note: This is a rough estimate because the interest portion of the piggyback loan declines over time, so the monthly difference won’t stay exactly $42.
Why do PMI timelines matter?
With a conventional mortgage, you can typically get rid of PMI once you reach 20% equity. If you expect rising home values or plan to make extra principal payments, PMI could drop off sooner than expected, reducing the long-term benefit of a piggyback loan.
What if I don’t stay in the home long?
Piggyback loans tend to work best for borrowers who own their home for several years. If you sell or refinance within the first few years, the upfront closing costs and higher interest rate on the second mortgage may outweigh the savings from avoiding PMI. You should calculate a break-even point for the piggyback loan because exactly how long you’ll need to break even depends on your exact PMI premiums, second mortgage rate and closing costs.
As the example above shows, whether a piggyback loan pays off depends heavily on how long you keep the home.
Types of piggyback loans
When taking out a piggyback loan, the second mortgage is typically one of two types of home equity loan products:
- Home equity loan: A home equity loan is a fixed-rate installment loan against a portion of a property’s available equity. When used as a piggyback loan, the home equity loan serves as a down payment for the primary mortgage. Home equity loans typically have fixed monthly payments and repayment terms ranging from five to 30 years.
- Home equity line of credit: A HELOC is similar to a home equity loan, except it works much like a credit card. When using a HELOC for piggyback financing, borrowers can reuse the credit line after paying it off — as long as the HELOC is still within the draw period. HELOCs have variable interest rates and monthly payments, but HELOC rates are typically lower than home equity loan rates.
How piggyback loans are structured
- 80-10-10 piggyback loan: The first mortgage finances 80% of the purchase price, the second mortgage covers 10% and you put down another 10%.
- 80-15-5 piggyback loan: Similar to above, the primary mortgage covers 80% of the purchase amount, but the second mortgage finances 15% and you put down 5%.
- 80/20 piggyback loan: With this structure, the first mortgage finances 80% of the home price, and the second mortgage covers 20%, meaning you finance the entire purchase without making a down payment. The 80/20 mortgage was popular in the early to mid-2000s, but is less common today.
You can tailor the percentages of the primary mortgage, piggyback loan and down payment to meet your needs. For example, if you’re using a piggyback loan to avoid a jumbo loan, your percentages may be less cut and dry than the above options.
Pros and cons of piggyback loans
Pros
- You can avoid paying mortgage insurance.
- You can buy a higher-priced home without taking out a jumbo loan.
- You’ll build home equity faster than if you were paying for PMI.
- The interest paid on the second loan may be tax-deductible.
- Your two monthly payments might be cheaper than a jumbo loan payment.
- You can leverage a HELOC for other purposes after repaying the credit line.
Cons
- You’ll pay a higher interest rate on the second mortgage.
- You’ll pay closing costs on two home loans.
- It can be difficult to refinance or sell your home with two loans.
- Qualifying for a piggyback loan can be more challenging than a primary mortgage.
- You’ll have two monthly mortgage payments.
- Your total borrowing costs could be higher than taking out a single loan.
How to get a piggyback loan
Step 1: Explore and compare lenders
You may be able to finance both your first and second mortgages with the same lender. In fact, some lenders offer a discount for borrowing both loans with them, but you may find a better deal using separate lenders. Compare interest rates, APRs, fees and loan terms between multiple lenders to see which option meets your needs and gives you the best deal.
Step 2: Note the qualifications of each loan
The minimum requirements will differ between the primary and second mortgages. For example, lenders typically require a 620 credit score for a conventional mortgage
The two loan types may also have different debt-to-income (DTI) ratio thresholds and other unique requirements. Familiarize yourself with the two sets of qualifications to be sure you meet them both.
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Step 3: Apply for your first mortgage
You’ll apply for both loans simultaneously, but securing your first loan is a priority since you can’t get the piggyback loan without it. You’ll follow your lender’s requirements for the application and underwriting processes.
Step 4: Apply for your second mortgage
Whether you end up financing both loans with two separate mortgage lenders or the same one, you’ll submit your second mortgage application while securing your first mortgage. If you’re working with a single lender, the loan process will be somewhat streamlined since they already have the necessary information. If you’re financing the piggyback loan with a separate lender, expect to provide both lenders with your personal and financial information.
Step 5: Prepare for closing
After both loans are approved, you’ll enter the underwriting phase and go through a home appraisal, inspection and other steps. You’ll also need to ensure your down payment and closing costs funds are ready. Each lender may request additional information or documents throughout the mortgage process. Respond promptly to each request to ensure a smooth closing on both loans.
Piggyback loan alternatives
If you’re looking to reduce your down payment on a home loan while avoiding ongoing mortgage insurance costs, you have several options beyond piggyback loans:
- Down payment assistance grants and forgivable loans. Some down payment assistance programs provide grants or forgivable second mortgages if you remain in the home for a certain amount of time.
- USDA loans. If you’re purchasing a home in a rural area, you may qualify for a mortgage from the U.S. Department of Agriculture (USDA). These zero-down loans are aimed at low- and moderate-income borrowers and don’t require you to pay mortgage insurance premiums, though they do come with guarantee fees.
- VA loans. Loans backed by the U.S. Department of Veterans Affairs (VA) allow veterans, active-duty service members and eligible surviving spouses to purchase a home with 0% down. VA loans come with an upfront funding fee, but no ongoing mortgage insurance premiums.
Is a piggyback loan worth it in 2026?
are averaging:
6.10%
are averaging:
6.38%
Here’s why a piggyback loan may be a good choice in 2026:
✓ Second mortgage rates aren’t much higher than first-mortgage rates.
When the interest rate gap between first and second mortgages is relatively small, the added cost of the piggyback loan may be easier to offset with PMI savings over time.
✓ PMI costs remain significant for many borrowers.
Affordability is a struggle for many Americans, and PMI can add hundreds of dollars to a monthly mortgage payment.
✓ Home value growth is slowing down. When compared with 2013 to 2024, home values have risen more slowly over the last year. Borrowers may reach 20% equity sooner through appreciation alone when home prices rise rapidly, allowing PMI to drop off earlier. Slower home value growth can delay PMI cancellation, increasing the potential benefit of avoiding PMI upfront with a piggyback loan.
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