Piggyback Loan vs. PMI: Which Is the Better Way to Avoid Extra Costs?

Last updated 11/11/2025 by

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Summary:

Both piggyback loans and private mortgage insurance (PMI) let you buy a home with less than 20% down. Piggybacks use two loans to avoid PMI, while PMI adds an insurance premium to a single mortgage. Learn which approach saves more depending on your credit, loan size, and long-term plans.

Piggyback loans and private mortgage insurance (PMI) are two common paths for homebuyers who can’t—or prefer not to—put 20% down. While both help you reach homeownership sooner, they work in very different ways. One splits your mortgage into two loans, the other adds an insurance premium to your monthly payment.

This guide breaks down how each option works, compares their costs, and helps you decide which fits your financial situation best.

How Each Option Works

Piggyback Loan (80/10/10)

A piggyback loan, or 80/10/10 mortgage, combines:

80% first mortgage (conventional loan)
10% second mortgage or HELOC
10% down payment

The second loan “piggybacks” on the first, keeping the main mortgage at 80% LTV—so you avoid PMI altogether.

Private Mortgage Insurance (PMI)

PMI protects the lender when you make a smaller down payment. You pay a monthly insurance premium—usually 0.3% to 1.5% of your loan annually—until you reach 20% equity or refinance.

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Why Homebuyers Compare Piggyback Loans and PMI

Both strategies help you buy a home sooner with less money down. The key difference is where the extra cost goes—to a second lender (piggyback) or to an insurer (PMI).

Piggyback loans help you avoid PMI entirely but add a second monthly payment.
PMI adds an insurance premium to your single loan, but it drops off once you build 20% equity.
Your savings depend on interest rates, home price, and how long you plan to stay in the property.

Smart Move: Use an online mortgage calculator to compare your total cost with PMI vs. an 80/10/10 setup. The right choice depends on how quickly you’ll gain equity or refinance.

Pros and Cons of Each Option

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and drawbacks to consider.

Piggyback Loan vs. PMI: Key Differences

Feature	Piggyback Loan	PMI
Number of Loans	Two (first + second mortgage)	One
Upfront Costs	Higher (two closings)	Lower
Monthly Payment	Two payments, may start higher	One payment + PMI fee
PMI Required?	No	Yes
Tax Deductibility	Interest may qualify	Limited or none
Best For	High-credit borrowers planning to prepay second loan	Those wanting a simple, single-loan setup

Example: Piggyback Loan vs. PMI Cost Comparison

Let’s compare two homebuyers purchasing a $500,000 home with 10% down to see how total costs differ.

Scenario	Loan Setup	Monthly Payment (approx.)	Extra Costs
Piggyback Loan (80/10/10)	$400,000 first + $50,000 second	$2,680	No PMI, but higher rate on 2nd loan
Single Loan + PMI	$450,000 single mortgage	$2,720	$75–$125/month PMI until 20% equity

In this case, the piggyback saves roughly $40 per month upfront. However, the second loan’s rate and term determine if the total long-term cost is truly lower. If you pay off the second loan within a few years, you’ll likely come out ahead.

Smart Move: Ask lenders for amortization breakdowns on both scenarios — the results vary based on rates, equity growth, and your payoff timeline.

How to Choose Between Piggyback and PMI

Choosing the right strategy depends on your goals, time horizon, and credit profile. Here’s how to decide:

Pick a Piggyback Loan if you have strong credit, plan to pay off the second quickly, or want to avoid jumbo loan limits.
Choose PMI if you prefer simplicity, plan to stay long term, or may refinance within a few years.
Compare the math: The best choice minimizes your total interest and fees over the time you’ll own the home.

Pro Tip: If your goal is short-term PMI avoidance, consider a conventional loan with a one-time upfront PMI premium—it can be cheaper than carrying a second loan.

How Long Does It Take to Break Even?

Your break-even point is when the higher upfront costs of a piggyback loan equal the cumulative PMI payments you would’ve made on a single loan.

Short-term homeowners (under 3 years): PMI may be cheaper, since you won’t have time to pay off the second loan.
Medium-term (3–7 years): Piggybacks often save money if the second loan is repaid or refinanced early.
Long-term (8+ years): The simplicity of PMI may win out after considering interest and closing costs.

Use your lender’s amortization schedule to estimate when your PMI would end and compare that to the payoff timeline for your second loan.

Pro Tip: Even small extra payments toward your second loan — say, $200 a month — can shave years off repayment and maximize piggyback savings.

Alternatives to Piggyback Loans and PMI

FHA Loan — 3.5% down, flexible credit, but includes ongoing mortgage insurance.
USDA Loan — 0% down, low rates, limited to eligible rural or suburban buyers.
VA Loan — 0% down and no PMI for eligible veterans and active-duty service members.
Jumbo Loan — For high-cost properties exceeding conforming limits, often with stricter credit requirements.

What It All Means for You

Both piggyback loans and PMI serve the same purpose—helping you buy a home with less than 20% down. The right option depends on how long you’ll stay in the home, your credit score, and your tolerance for managing two loans. In most cases, strong-credit borrowers who can prepay quickly may benefit from a piggyback loan, while others may prefer the simplicity and flexibility of PMI.

Key takeaways

Piggyback loans avoid PMI by using a second mortgage to stay below 80% LTV.
PMI adds a monthly insurance fee but drops off once you reach 20% equity.
Piggybacks suit strong-credit borrowers planning to pay off the second loan early.
Always compare total loan cost, not just monthly payments, before deciding.

Here’s How to Get Started

Compare quotes from multiple mortgage lenders to see whether an 80/10/10 piggyback or a single loan with PMI gives you the best long-term value.

Compare top-rated lenders on SuperMoney’s Best Piggyback Loans page to find the most competitive rates and terms for your next home purchase.

Learn More About Piggyback Loans

Piggyback Loan vs. PMI — See how piggyback loans compare to private mortgage insurance and which option can save you more.
How to Qualify for a Piggyback Loan — Find out the credit score, income, and equity requirements for getting approved.
Pros and Cons of a Piggyback Loan — Weigh the advantages and drawbacks before deciding if this financing strategy fits your goals.
Piggyback Loan vs. Jumbo Loan — Compare how these two loan types differ in terms of limits, rates, and borrower flexibility.
How Does a Piggyback Loan Work? — Learn the structure of 80-10-10 and similar loans and how they can help you avoid PMI.
Should You Get a Piggyback Loan? — Understand when a piggyback loan makes sense and when to explore other financing options.
How to Pay Off a Piggyback Loan Early — Discover smart strategies to eliminate your second mortgage faster and save on interest.
Can You Refinance a Piggyback Loan? — Explore when and how refinancing could lower your payments or simplify your mortgage.
Piggyback Loan vs. Second Mortgage — Understand the key distinctions to choose the best solution for your home financing needs.

FAQs

What is the main difference between a piggyback loan and PMI?

A piggyback loan uses a second mortgage to avoid PMI, while PMI is an insurance premium added to a single loan when you put less than 20% down.

Is a piggyback loan better than PMI?

It depends on your situation. A piggyback can save more if you pay off the second loan quickly, but PMI may be cheaper and easier for long-term homeowners.

Can you refinance out of PMI?

Yes. Once you reach 20% equity, you can remove PMI through cancellation or refinance into a new loan without it.

Can you refinance a piggyback loan?

Yes, but it’s more complex—you’ll need to pay off or subordinate the second loan before refinancing the first mortgage.

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