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What Are Piggyback Loans?

posted by Stephen Katz @ 4:23 PM
Tuesday, December 3, 2013

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.

Stephen Katz

(770) 309-0939 (direct) or (866) 742-8400 -- For the past 18 years, Stephen Katz has built a successful business almost entirely on referrals. As your mortgage consultant throughout the home loan process, Stephen will explain the pros and cons of all available mortgage programs and help you choose the financing option that is best suited to your needs. Throughout the loan process, he will keep you informed and will respond quickly to your requests with answers and solutions. Consistently a top producer, Stephen is a Mortgage Bankers Association "Diamond" Award winner, a Georgia Mortgage "Top Gun" and has closed almost half a billion dollars in loans. Put his knowledge and experience to work for you!

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