Pros and Cons of a Piggyback Loan (80/10/10 Mortgage)

Last updated 11/11/2025 by

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Summary:

A piggyback loan, or 80/10/10 mortgage, can help you buy a home with less than 20% down while avoiding PMI and higher jumbo rates. But managing two loans adds complexity and potential risk. Learn the key benefits and drawbacks to see if this strategy fits your financial goals.

Piggyback loans — also known as 80/10/10 mortgages — pair a first and second loan to finance a home while avoiding private mortgage insurance (PMI). This structure can be a powerful tool for borrowers with strong credit, but it isn’t ideal for everyone.

By looking at both sides, you can decide if a piggyback loan makes sense for your finances.

How Piggyback Loans Work

The classic 80/10/10 setup divides your home financing into three parts:

80% — First mortgage (conventional fixed-rate loan)
10% — Second loan (HELOC or second mortgage)
10% — Down payment from the borrower

By keeping the first loan at 80% of the home’s value, you avoid paying PMI. However, you’ll take on two monthly payments and two sets of loan terms.

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Advantages of a Piggyback Loan

For qualified borrowers, piggyback loans offer clear financial benefits — especially when avoiding PMI or staying below jumbo loan limits.

Avoids PMI: Keeps your first mortgage under 80% loan-to-value (LTV), saving $100–$300+ per month on insurance.
Lower upfront costs: Requires less than 20% down while still sidestepping PMI.
Stay under jumbo loan limits: Helps buyers in high-cost areas qualify for conforming rates.
Interest may be tax-deductible: Interest on both loans may qualify if used to buy or improve your home (check IRS rules).
Build equity faster: Aggressively paying off the second loan shortens your payoff timeline.

Smart Move: Use a piggyback loan if you plan to pay off the second mortgage quickly or refinance once your equity reaches 20%.

Disadvantages of a Piggyback Loan

While piggybacks can save on PMI, they come with more moving parts — and potential risks if rates change or income fluctuates.

Two payments to manage: You’ll juggle two separate loans with different due dates and terms.
Higher rate on the second loan: The second mortgage or HELOC often carries a variable or higher interest rate.
More complex closing process: Two approvals and two sets of closing costs can lengthen timelines.
Harder to refinance later: You may need to pay off or subordinate the second loan before refinancing.
Less flexibility if home value drops: Negative equity could complicate refinancing or selling.

Real-Life Example: When a Piggyback Loan Saves More

Let’s look at two borrowers buying a $500,000 home with 10% down. Both have excellent credit, but one chooses a piggyback loan, and the other goes with a single loan plus PMI.

Scenario	Loan Setup	Monthly Payment (Approx.)	Extra Costs
Piggyback Loan (80/10/10)	$400,000 first + $50,000 second	$2,680	No PMI, higher rate on 2nd loan
Single Loan + PMI	$450,000 mortgage + PMI	$2,740	$80–$120/month PMI until 20% equity

In this case, the piggyback loan saves roughly $60 per month upfront. However, if the borrower keeps the home for less than three years or the second loan carries a high variable rate, PMI could end up cheaper overall.

Smart Move: Use a mortgage calculator to compare both options based on your credit score, loan size, and expected time in the home.

When a Piggyback Loan Makes Sense

Piggyback loans are best for borrowers who have strong credit, plan to stay in their home for at least a few years, and can pay off the second mortgage quickly.

You have a credit score above 700 and solid income stability.
You want to avoid jumbo loan limits but can afford a 10% down payment.
You expect to refinance within 5–7 years or pay off the second loan early.
You prefer flexibility in how you structure your payments and equity growth.

Pro Tip: Before choosing a piggyback loan, compare the total cost (including both interest rates and closing fees) against a single loan with PMI. The winner depends on how long you plan to stay in the home.

When to Avoid a Piggyback Loan

Piggybacks aren’t ideal for every borrower. You may want to consider a different loan type if:

Your credit score is below 680 — rates on the second loan may offset any PMI savings.
You plan to move or refinance within two years.
You prefer the simplicity of one monthly payment.
You’re already stretching your budget — managing two payments increases risk if income drops.

Tax Considerations and Interest Deductions

Interest paid on both portions of a piggyback loan may be tax-deductible if the funds are used to buy, build, or substantially improve your home. However, there are limits on how much mortgage debt qualifies.

Deductibility cap: The IRS allows deductions on up to $750,000 of combined mortgage debt for most borrowers ($375,000 if married filing separately).
HELOC usage matters: If your second loan is a HELOC, the interest is only deductible if used for home-related expenses — not personal spending.
Documentation tip: Keep year-end mortgage interest statements (Form 1098) for both loans for accurate tax filing.

Always verify eligibility with a tax professional or consult IRS Publication 936 for the most up-to-date deduction rules.

Pro Tip: Even if your second loan isn’t fully deductible, paying it off early can still save more than the tax benefit of mortgage interest deductions.

Piggyback Loan vs. Single Loan with PMI

Feature	Piggyback Loan	Single Loan + PMI
Structure	Two loans (80% + 10%) + 10% down	One loan (90%) + PMI added
PMI Required?	No	Yes
Monthly Payments	Two (may start higher)	One (includes PMI)
Refinancing	More complex (2 liens)	Simpler (1 loan)
Best For	Strong-credit borrowers seeking PMI savings	Buyers prioritizing simplicity

Alternatives to Piggyback Loans

If a piggyback loan doesn’t fit your situation, these other mortgage options might:

FHA Loan — 3.5% down, lower credit requirement, but includes mortgage insurance.
USDA Loan — 0% down and no PMI for qualifying rural areas.
VA Loan — 0% down and no PMI for eligible veterans and service members.
Conventional Mortgage — Flexible terms and removable PMI once you reach 20% equity.

What It All Means for You

Piggyback loans can be a smart way to avoid PMI and lower your borrowing costs, but they come with added complexity. If you have strong credit, steady income, and a plan to pay off the second loan early, they can deliver meaningful savings. For others, a single mortgage with PMI might offer better simplicity and predictability.

Key takeaways

Piggyback loans help you avoid PMI but require managing two mortgages.
The 80/10/10 structure reduces upfront costs while staying under conforming limits.
They’re best for strong-credit borrowers who can pay off the second loan quickly.
Compare total interest, not just PMI savings, before choosing this option.

Here’s How to Get Started

Compare current 80/10/10 mortgage options and see how much you could save versus a single loan with PMI.

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 are the main advantages of a piggyback loan?

It helps you avoid PMI, reduce upfront costs, and stay under jumbo loan limits while potentially saving money on total interest.

What are the risks of a piggyback loan?

You’ll manage two payments, and the second loan may have a higher or variable rate. Refinancing or selling can also be more complex.

Is a piggyback loan a good idea?

It can be if you have strong credit, a steady income, and plan to pay off the second mortgage quickly. Otherwise, a single loan with PMI may be simpler and safer.

Can you refinance a piggyback loan?

Yes, but you may need to pay off or subordinate the second loan before refinancing the first mortgage.

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