A piggyback mortgage splits your borrowing into two loans taken out at the same time: a first mortgage for 80% of the price and a smaller second loan on top. Because the first loan stays at 80% loan-to-value, it needs no private mortgage insurance (PMI). The trade-off is a second loan at a higher rate. Whether that beats one bigger loan with PMI comes down to the numbers below.
The common splits
- 80/10/10: 80% first mortgage, 10% second loan, 10% down. The most common piggyback today.
- 80/15/5: 80% first, 15% second, 5% down. Fewer lenders offer it, and the second loan is larger and usually pricier.
- 75/15/10: 75% first, 15% second, 10% down. Sometimes used where a lender prices or approves loans at 75% loan-to-value more favourably, such as for some condos.
- 80/20: 80% first, 20% second, nothing down. Common before 2008 and rare now; most lenders cap the combined loan at 90% to 95% of the price.
A second motive besides PMI is the conforming loan limit set each year by the FHFA: splitting the borrowing can keep the first mortgage under the limit and out of jumbo pricing.
Worked example: $500,000 home, $50,000 down
Rates here are illustrative: 6.5% on a 30-year first mortgage, 8.5% on a 20-year fixed second loan, and PMI at 0.5% of the loan a year for the single-loan option. Use the quotes you actually receive.
Option A — 80/10/10 piggyback
- First mortgage $400,000 at 6.5%, 30 years: $2,528 a month
- Second loan $50,000 at 8.5%, 20 years: $434 a month
- Total principal and interest: $2,962 a month, no PMI
Option B — one 90% loan with PMI
- Mortgage $450,000 at 6.5%, 30 years: $2,844 a month
- PMI at 0.5% a year: $188 a month
- Total: $3,032 a month while PMI lasts, then $2,844
At the start, the piggyback costs $70 a month less than the single loan. But PMI does not last forever. On regular payments, the single loan's balance falls to 80% of the original price after about 7 years 11 months, when you can ask the lender to cancel PMI, and to 78% after about 9 years 1 month, when it must end automatically under the federal Homeowners Protection Act (if you are current on payments). Over that time PMI would cost about $20,438 in total.
The second loan, meanwhile, keeps charging interest until it is repaid: about $34,255 over the same 9 years 1 month, and about $54,139 over its full 20 years if you never pay it off early. Comparing those two figures alone is misleading, though, because the single loan also charges 6.5% on the extra $50,000 it lends you. The fair test is what each option has cost you after a given number of years — every payment made plus what you still owe:
- After 5 years: piggyback $596,239, single loan with PMI $603,158 — the piggyback is $6,919 cheaper
- After 10 years: piggyback $729,563, single loan with PMI $743,247 — the piggyback is $13,683 cheaper
- After 30 years: piggyback $1,014,317, single loan with PMI $1,044,388 — the piggyback is $30,071 cheaper
Why the piggyback wins here: while PMI lasts, PMI at 0.5% is charged on the whole $450,000, not just on the top 10%. Spread over the extra $50,000 you borrow, the single loan's top slice effectively costs about 11% a year (6.5% interest plus PMI), which is more than the 8.5% second loan. The result can flip when PMI is cheap (strong credit, or a loan only a little above 80% of the price) or when the second loan's rate is much higher, so always run both quotes.
When a piggyback usually makes sense
- Your PMI quote is high, which is common with lower credit scores, and the second-loan rate is reasonable.
- You expect a bonus, an inheritance or the sale of another property and plan to pay off the second loan within a few years.
- Keeping the first mortgage under the conforming limit avoids jumbo pricing.
When one loan with PMI is usually better
- Your credit is strong and the PMI quote is low.
- The second loan is a HELOC with a variable rate, and you do not want payment risk on it.
- Your home is likely to rise in value: with a single loan you can often ask to remove PMI early based on a new appraisal, while a second loan has to be repaid.
- You might refinance later. Refinancing two loans, or getting the second lender to agree to stay in second position, adds cost and paperwork.
How to compare your own quotes
- Get a PMI quote and a piggyback quote from the same lender on the same day, with the same first-mortgage rate.
- Compare the total monthly payment of each option in the mortgage calculator, including taxes and insurance.
- Check when PMI would end on the single loan with the PMI removal calculator, and total the PMI over that period.
- Total the second loan's interest over the years you expect to keep it; if it is a home equity loan, the home equity loan calculator gives the payment, and the HELOC CLTV calculator checks the combined loan-to-value lenders will allow.
- Pick the option with the lower total cost over your likely time in the home, not just the lower first payment.