A piggyback mortgage, also called a combo mortgage, is a second mortgage secured with the same collateral. These mortgages are often used for the down payment on a property or to avoid paying PMI.
Types of Piggyback Mortgages
Here are the main types of piggyback mortgages in the U.S. today.
Down Payment Mortgages
A down payment mortgage is a down payment assistant loan that is also called a silent second mortgage. It is taken out concurrently with the larger, first mortgage for the purchase of a home.
The down payment mortgage is a smaller loan that accompanies the first mortgage to cover the down payment. These loans are often taken out from secondary lenders rather than the primary mortgage lender.
A second mortgage is a broad term describing a mortgage using a subordinated piece of collateral when that collateral has home equity.
Home equity is calculated as the home’s appraisal value minus the outstanding loan balance.
Home Equity Loan, Home Equity Line of Credit
Home equity loans are piggyback loans and are not typically used to buy a home. However, in some cases, a homebuyer can take the equity from an existing home via a home equity loan to buy a second home or investment property.
Benefits of Piggyback Mortgages
Here are some of the ways piggyback mortgages are advantageous.
Avoiding Jumbo Mortgages
Jumbo mortgages are home loans that are too large in value to be considered conforming mortgages. Because they are nonconforming, they are considered riskier loans. Borrowers may face higher interest rates and down payment requirements and may have fewer lending options.
Rather than taking out a jumbo mortgage, borrowers may choose to borrow the maximum for a conforming loan with the primary mortgage, then borrow the remaining amount as a second mortgage. This option allows the borrower to:
- Avoid a costlier jumbo mortgage.
- Benefit from the security of a conforming mortgage.
Mortgages that are not secured may require a down payment of 20%. Borrowers who do not want to pay a 20% down payment are usually required to buy private mortgage insurance (PMI) to reduce the lender’s risk.
For example, with a piggyback mortgage, borrowers who get a mortgage with a loan-to-value above 80% can eliminate PMI by getting the primary (first) mortgage at 80% LTV (loan-to-value) and a second mortgage at 10%.
Reducing Monthly Payments
Borrowers who use a piggyback mortgage to avoid getting a jumbo mortgage and/or avoid paying PMI can have a lower monthly mortgage payment. Furthermore, borrowers have an option of paying off the second mortgage quickly and saving on interest payments.
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in piggyback mortgages, combo mortgages, conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We have worked with second mortgages and piggyback mortgages to help clients lower their monthly mortgage payments.