What Is a Piggyback Loan?

A piggyback loan, also known as a second trust loan, is a form of home financing that buyers use to supplement their down payment and first mortgage loan. A piggyback mortgage loan is essentially a second smaller loan used by buyers who do not have enough money for a 20 percent down payment but also want to avoid paying private mortgage insurance.

Piggyback loans often times carry a higher interest rate because the borrower is taking on so much debt to finance their home purchase. Piggyback mortgages can also be used by home buyers who want to purchase a bigger or more expensive home.

Pros and Cons of Piggyback Loans

While piggyback loans may make financial sense for some home buyers, they aren’t a great option for everyone. For starters, you can use a mortgage calculator to figure out if it’s more cost effective to use a piggyback mortgage loan or pay the PMI.

Be aware that piggyback loans come with some disadvantages as well. Piggyback loans do carry a higher cost in terms of interest rates than a regular mortgage loan. Another potential difficulty from having a piggyback loan is the fact that the borrower is exhausting more of their available credit. This means that if they were to need another loan for whatever reason, they may have a harder time getting approved by another prospective lender.

Piggyback Loan Rates

Piggyback loans can come with higher rates and different payment structures. Getting a fixed rate second mortgage loan as a piggyback can help to reduce any unpredictable missteps in the future.

A typical piggyback loan structure is an 80-10-10 format where 80 percent is the first mortgage loan, 10 percent is the down payment and the other 10 percent is a second loan. Depending on your credit score and lender, piggyback structures can vary. Speak with a mortgage loan professional to learn more about piggyback loans and whether a piggyback loan would be right for you.