What Are Piggyback Loans?

Piggyback loans, which fell from the forefront during the housing downturn, are making a comeback as home values start to pick up.

Piggyback mortgages – when a borrower takes out a second mortgage in the form of a home equity or line of credit – accounted for 3.8% of the loans originated in 2012, compared to 1.7% of the loans for 2010.

The loans were commonly used by borrowers who wanted to avoid paying for mortgage insurance but didn’t have enough money for a 20% down payment. Some of these loans were taken out to finance home improvements; others were part of a subprime product known as an 80/20 mortgage, in which 80% of the purchase price was covered by a first, adjustable-rate mortgage, and the remainder by a second mortgage with a higher interest rate.

Piggybacks went away because values dropped so dramatically, so many of the banks that offered second mortgages out there lost everything.

As the market stabilizes and continues on its current path, we will see a reemergence of banks offering second mortgages, just as we’ve seen a reemergence of jumbo loans.



Piggyback can be a great product if used properly.



In the case of piggyback mortgages, it could make perfect sense for someone who might be short on the down payment, but can rather pay off the second mortgage rather than going with skyrocketing mortgage insurance.

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