DEFINITION of 'Piggyback Mortgage'

A type of mortgage where a second mortgage or home equity loan is taken out by a borrower at the same time the first mortgage is started or refinanced. Piggyback mortgages are frequently used to lower the loan-to-value ratio (LTV) of a first position mortgage to under 80%, thereby eliminating the need for private mortgage insurance (PMI).

BREAKING DOWN 'Piggyback Mortgage'

Before using a piggyback mortgage to lower the loan to value ratio of the first mortgage to levels under 80% (to avoid PMI), a borrower should consider that a piggyback mortgage usually has a higher interest rate than a single, stand-alone first mortgage. If borrowers expect that their home will appreciate in value quickly (so that the LTV will not be higher than 80% for long), paying PMI for a period of time might be more economical than using a piggyback loan.

"80-10-10" is a common form of piggyback mortgage: where 80% of the property is covered by the first mortgage, 10% of the property's value is derived from the second loan and the final 10% is covered by the borrower's down payment.

RELATED TERMS
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are ...
  2. Junior Mortgage

    A mortgage that is subordinate to a first or prior (senior) mortgage. ...
  3. First Mortgage

    A mortgage in a first lien position on the property that secures ...
  4. Second Mortgage

    A type of subordinate mortgage made while an original mortgage ...
  5. Lender-Paid Private Mortgage Insurance

    Private mortgage insurance that a mortgage lender pays on behalf ...
  6. Combination Loan

    1. A transaction consisting of two separate loans for the same ...
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RELATED FAQS
  1. Why do I need to pay private mortgage insurance (PMI)?

    The extra interest payments caused by private mortgage insurance may seem excessive, but there's a good reason lenders need ... Read Answer >>
  2. Why does the loan-to-value ratio matter?

    Learn how the loan-to-value (LTV) ratio is calculated, and why this metric is important to lenders when evaluating a home ... Read Answer >>
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