Piggyback Loan Calculator
Piggyback Loan Calculator is used to calculate whether or not you will save money with a piggyback mortgage, or a regular mortgage with PMI payments. Should I get a piggyback mortgage? Find out now with our piggyback mortgage calculator.
What is a piggyback mortgage loan?
A piggyback mortgage loan is a second mortgage taken out at the same time as the borrower's first mortgage.
A piggyback mortgage is secured by the same collateral as the first mortgage. Common types of second mortgages or piggyback loans are home equity loans and HELOCs.
How does a piggyback mortgage work?
A piggyback mortgage is usually taken out to avoid private mortgage insurance or PMI for a mortgage.
When a borrower makes a down payment lower than 20% on a conventional mortgage, most lenders require the borrower to pay for PMI to protect the lender in case the borrower defaults in the future.
A piggyback mortgage allows a homebuyer to access additional funding for a larger down payment and eliminate PMI.
In general, a homebuyer is only allowed to have one or two piggyback loans as the mortgages are secured by the same property.
What are the types of piggyback loans?
There are different types of piggyback loans available. The most common ones are 80-10-10, 80-5-15, and 80-15-5.
The first value of 80 is the percentage needed for the first mortgage that covers 80% of the home prices.
The second value is the percentage for the second mortgage or the piggyback loan.
The third value is the down payment the borrower will make on the first mortgage.
Piggyback loans example
For example, an 80-10-10 piggyback loan means 80% of the home price goes to the first mortgage, 10% goes for the piggyback loan (could be a HELOC or a home equity loan), and the last 10% as the buyer's down payment for the property.
What are the benefits and drawbacks of a piggyback mortgage?
There are many advantages and downsides of a piggyback mortgage, following are the pros
Pros of a piggyback mortgage?
- Eliminate PMI payment - if you don't have 20% saved up as a down payment for a house, traditional lenders will require you to pay PMI until your equity exceeds 20% or your LTV is lower than 80%. A piggyback helps homebuyers to avoid the PMI with a larger down payment.
- Lower interest rate - some lenders offer their borrowers a lower and more competitive interest rate when their down payment is bigger.
- Avoid jumbo loans - lowering the mortgage amount for the first mortgage may allow the homebuyer to stay within the conforming loan limits. When a mortgage exceeds a certain amount, it becomes a jumbo loan which is a non-conforming loan. Not all lenders offer jumbo loans, some lenders have higher interest rates for jumbo loans. A conforming mortgage offers you more choices of lenders and the opportunity for a lower interest rate.
- Lower down payment - a piggyback mortgage allows a borrower to make a lower down payment and hence more cash flow in their pockets.
Cons of a piggyback mortgage?
Here comes a list of drawbacks of a piggyback loan.
- Higher interest rate - the piggyback loan usually has a higher interest rate than the first mortgage.
- Higher monthly payments - the higher interest rate on the piggyback loan means higher total monthly payments on the combined loans than a single mortgage.
- Harder to qualify - it is usually easier to qualify for one mortgage rather than two mortgages at the same time.
- Limit mortgage amount - there is usually a limit on how much you can borrow on a piggyback loan.
- Harder to refinance - it will be harder to refinance because the piggyback lender has to agree to refinance. It is much easier to refinance with one mortgage than with two.
- variable rate - many piggyback loans like HELOC have a variable interest rate, so the monthly payments for your piggyback loan may go up over time. This will make it costly for homeowners with two mortgages.
- Two closing costs - with two mortgages, you will need to pay closing fees for both mortgages and they cost about 3%-6% on each of the mortgage amounts.
- Is it cheaper? - depending on the interest rate and the closing costs on your second mortgage, one has to ask himself if a piggyback loan is cheaper than paying for PMI.
The homebuyer will need to work out the math to see if a piggyback loan benefits them and makes sense. Add up all the closing costs and interest payments to find out whether getting a piggyback loan is cheaper than paying for PMI.