Definitions for "Piggy Back Loan"
A second home loan that allows a buyer, who is able to put 10% down on a home, to avoid mortgage insurance. With a 10% down payment, the first loan is for 80% of the purchase price, the second "piggy back" loan is for 10% of the purchase price. This is often called an 80-10-10 loan.
Piggy Back Loan is a slang term, which is really another way of describing a First and Second Trust Deed that are closed concurrently at the close of escrow. This combination of a First and Second Trust Deed can be effectively utilized to avoid private mortgage insurance. The borrower may apply for a loan at 90% with the same 10% down payment. A First Trust Deed at 80% and the Second Trust Deed at 10% could be procured in this case. The interest rate on the Second Trust Deed is typically higher, often times in double digits. However, the fact that the interest can be deducted on this Second Trust Deed often makes this a prudent financial option for the customer. The net result is often cheaper than borrowing all 90% of the money as one loan and incurring the Private Mortgage Insurance (PMI).
A second loan on a home, usually up to 15%-20% of the property's purchase price. If you make a 10% down payment on a home, one way to avoid paying for private mortgage insurance (PMI) is to get two loans. Here's how it works: you get a loan for 80% of a property's purchase price at a standard interest rate and then get a second, "piggy back" loan at 10% of the purchase price, though at a higher rate. This type of financing is commonly called 80-10-10. If the first loan is less than $227,150, you can opt for a 75-15-10 arrangement, which will give you a lower interest rate on the first loan. To figure out if getting a second makes sense for you, compare your monthly costs with a piggy back loan versus PMI.