Piggyback Mortgage

See: Piggyback Registration Rights.

A “piggyback mortgage” is an additional mortgage that we secure with the same collateral we used for the first mortgage. For those out there asking why on Earth anyone would want another mortgage when having just one can be stressful enough...well, there are a few reasons.

Let’s say Lena really wants to buy a house but doesn’t have enough cash on hand for a 20% down payment. Generally speaking, if we can’t put down the full down payment, we’ll have to pay something called mortgage insurance every month for several years. Mortgage insurance can get a little expensive, so Lena decides to go the piggyback mortgage route instead: she takes out an additional mortgage just to cover half of the amount of the down payment. Now she’s got two mortgages for one house…but she doesn’t have to pay mortgage insurance. So that’s nice.

Now let’s head across town to Adam’s place. He loves everything about his house…except for the kitchen. It’s old, it’s outdated, and it’s falling apart. He decides to take out a home equity loan so he can pay for the remodel he’s always dreamed of. And guess what? That home equity loan is also a piggyback loan. It’s another mortgage loan secured by the same collateral.

Do these additional mortgages come with a higher interest rate than the first loan? Most of the time, yes, they do. That can be a little bit of a bummer, but look at the bright side: if we can use piggyback mortgages to get our loan-to-value ratio below 80% (in other words, we’ll owe 80% or less of the overall value of our home), then we’re a lot more likely to get the loan amount—and possibly the interest rate on the first mortgage—that we really want.