Piggyback Loan vs. Second Mortgage: What’s the Difference?

Q: Which Option Is Right for You?

The choice depends on your goals and timing: Choose a Piggyback Loan if you’re buying a new home and want to avoid PMI with less than 20% down. Choose a Second Mortgage if you already own your home and want to borrow against its value for cash needs. Consider refinancing if your goal is to simplify... Learn More at SuperMoney.com

Last updated 12/05/2025 by

Ante Mazalin

Edited by

Andrew Latham

Summary:

Piggyback loans and second mortgages both let homeowners tap their home’s equity — but they’re used for different reasons. A piggyback loan helps you buy a home and avoid PMI, while a second mortgage is used later to access equity. Here’s how to tell which one is right for you.

Homebuyers and homeowners often hear the terms piggyback loan and second mortgage — and while they sound similar, they’re not the same thing. Both involve borrowing against your home, but their timing, structure, and purpose differ.

Let’s break down how each works and which might be better for your situation.

How Each Loan Type Works

Here’s a quick look at how piggyback loans and second mortgages are structured and used:

Piggyback Loan (80/10/10): Used at the time of purchase, a piggyback combines two loans — typically an 80% first mortgage and a 10% second mortgage or HELOC — plus a 10% down payment. The goal is to avoid private mortgage insurance (PMI) and stay under conforming loan limits.
Second Mortgage: Taken out after you already own your home, a second mortgage lets you borrow against your built-up equity. It’s often used for renovations, debt consolidation, or major expenses.

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Piggyback Loan vs. Second Mortgage: Quick Comparison

Feature	Piggyback Loan	Second Mortgage
Timing	Used at the time of purchase	Taken after you already own the home
Purpose	Helps avoid PMI or jumbo loan limits	Access home equity for cash needs
Structure	Two simultaneous loans (first + second)	Single new loan added on top of the first mortgage
Interest Rates	First loan lower; second usually higher	Fixed or variable; usually higher than first mortgage
Loan Type	Home purchase financing	Home equity loan or HELOC
Tax Deduction	Interest may be deductible if used to buy or improve your home	Deductible only if used for home improvement (per IRS rules)
Example Use	Avoid PMI on a $600,000 home with 10% down	Borrow $50,000 for renovations or debt consolidation

Why Borrowers Use Piggyback Loans

Piggyback loans are most commonly used by homebuyers who want to avoid paying PMI or stay below jumbo loan limits. They’re ideal for people with strong credit and moderate down payments.

Save on PMI: Avoid monthly insurance costs that don’t build equity.
Smaller down payment: Buy a home with 10% down instead of 20%.
Stay under conforming limits: Avoid stricter jumbo loan requirements.
Potential tax benefits: Interest on both loans may qualify as deductible under IRS guidelines.

Smart Move: Piggyback loans work best if you plan to pay off the second loan quickly or refinance once you build enough equity.

Why Homeowners Use Second Mortgages

Second mortgages are used after you already own your home. They’re a way to tap into your equity without refinancing your primary mortgage.

Home improvements: Fund upgrades that increase property value.
Debt consolidation: Pay off higher-interest credit cards or personal loans.
Education or medical costs: Access low-interest funding for major expenses.
Preserve low first mortgage rates: Keep your original loan intact if market rates are higher.

Pros and Cons Compared

WEIGH THE RISKS AND BENEFITS

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

Which Option Is Right for You?

The choice depends on your goals and timing:

Choose a Piggyback Loan if you’re buying a new home and want to avoid PMI with less than 20% down.
Choose a Second Mortgage if you already own your home and want to borrow against its value for cash needs.
Consider refinancing if your goal is to simplify payments or consolidate both loans into one.

Pro Tip: Before taking out any second loan, calculate your combined loan-to-value (CLTV) ratio. Most lenders prefer it to stay under 85% to qualify for the best terms.

Alternatives to Consider

FHA Loan — 3.5% down with flexible credit, but requires mortgage insurance.
USDA Loan — 0% down and low rates for qualifying rural areas.
VA Loan — 0% down and no PMI for eligible service members.
Conventional Mortgage — Flexible terms with removable PMI once you reach 20% equity.

What It All Means for You

Piggyback loans and second mortgages both use your home’s equity, but they serve different purposes. If you’re buying a home, a piggyback loan can help you save on PMI and qualify for a better rate. If you already own a home, a second mortgage or HELOC may be a smarter way to access cash without refinancing your first loan. The key is knowing your goals — and comparing total costs before deciding.

Key takeaways

Piggyback loans are used during home purchase; second mortgages are taken after purchase.
Piggybacks help avoid PMI and jumbo limits; second mortgages provide cash from home equity.
Both loans use your home as collateral, so always compare total costs and risks.
Choose based on your goal — avoiding PMI, accessing cash, or refinancing.

Here’s How to Get Started

Compare lenders that offer piggyback loans and second mortgages to find the right fit for your financial goals.

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

FAQs

Is a piggyback loan the same as a second mortgage?

No. A piggyback loan uses a second mortgage as part of a home purchase, while a traditional second mortgage is taken later to borrow against existing equity.

Can I take out a piggyback loan after buying a home?

No. Piggyback loans are structured at the time of purchase to avoid PMI. Afterward, your options are limited to home equity loans or HELOCs.

Can you refinance a piggyback loan?

Yes. Once you’ve built 20% equity, you can refinance both loans into one conventional mortgage with a single payment.

Which is better: a second mortgage or a piggyback loan?

It depends on your goal. Piggybacks help at purchase time to avoid PMI, while second mortgages work best when you already own a home and need cash access.

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