What Is a Piggyback Mortgage?

A piggyback mortgage is an additional debt that can include any mortgage or loan beyond a borrower’s first mortgage loan, which is secured with the same collateral. Common types of piggyback mortgages include home equity loans and home equity lines of credit (HELOCs).

Understanding Piggyback Mortgages

Piggyback mortgages can serve several purposes. Some piggyback mortgages are allowed to help a borrower with a down payment. Generally, most borrowers will only have the capacity to take on one or two piggyback mortgages since all of the loans are secured with the same 澳洲幸运5官方开奖结果体彩网:collateral.

A piggyback mortgage can also be used to avoid paying for 澳洲幸运5官方开奖结果体彩网:private mortgage insurance, or PMI. In this case, a 澳洲幸运5官方开奖结果体彩网:second mortgage or home equity loan is taken out at the same time as the 澳洲幸运5官方开奖结果体彩网:first mortgage. With an "80-10-10" piggyback mortgage, for example, 80% of the purchase price is covered by the first mortgage, 10% is covered by the second loan, and your down payment covers the final 10%. This lowers the 澳洲幸运5官方开奖结果体彩网:loan-to-value (LTV) of the first mortgage to under 80%, eliminating the need for PMI. For example, if your new home costs $350,000, your first mortgage would be $280,000, the second mortgage would be $35,000, and your down payment would be $35,000.

Types of Piggyback Mortgages

Down Payment Mortgages

Down payment mortgages are a type of piggyback mortgage that gives a borrower funds for a down payment. Second mortgages are typically only allowed when they use funds from a down payment assistance program. All sources of down payment funds used in securing a mortgage are required to be disclosed to the first 澳洲幸运5官方开奖结果体彩网:mortgage lender.

Generally, second mortgages from many alternative lenders are not allowed since they are beyond the parameters of the first mortgage’s terms and greatly increase the default risks for a borrower. Down payment assistant mortgages may also be known as 澳洲幸运5官方开奖结果体彩网:silent second mortgages.

Second Mortgages

Generally, a borrower can only get a 澳洲幸运5官方开奖结果体彩网:second mortgage using a subordinated piece of collat⛦eral when that collateral has home equity. Home equity is the portion a borrower has paid on their home. It is calculated as the home’s appraisal value minus the outstanding loan bal🔯ance.

Many borrowers find themselves in an 澳洲幸运5官方开奖结果体彩网:underwater mortgage in th💯e early phases of a mortgage loan repayment since the property can decrease in value and the mortgage balance has not yet been substantially paid down. If a borrower does have home 🌟equity, they have a couple of options for a second mortgage home equity loan.

These second mortgage products include either a standard home equity loan or a home equity line of credit. Both a home equity loan and a home equity line of credit are based on the available equity in a borrower’s collateral.

Home Equity Loans

A standard home equity loan is a non-revolving credit loan. In a standard home equity loan, a borrower can receive the equity value upfront as a lump sum principal payment. The loan typically requires monthly installments based on credit terms customized by the lender. Borrowers use a home equity loan for various purposes including college costs for their child, home improvements, debt consolidation, or emergency expenses.

Home Equity Lines of Credit

A 澳洲幸运5官方开奖结果体彩网:home equity line of credit is a revolving credit account that provides a borrower with greater spending flexibility. This type of credit🔯 account has a maximum credit limit based on the borrower’s home equity. The account balance is revolving which means borrow𓆉ers control the outstanding balances based on their purchases and payments. A revolving account will also be assessed monthly interest which adds to the total outstanding balance.

In a home equity line of credit, borrowers receive a monthly statement detailing their transactions for the period and a monthly payment amount they must pay to keep their account in good standing.

The Bottom Line

A "piggyback" mortgage is an additional debt beyond the first mortgage loan. There are a variety of different types from a down payment mortgage to a second mortgage to a home equity loan to a HELOC. These loans can also be used to avoid paying a PMI through things like an "80-10-10" piggyback mortgage.