Reasoning behind the 80-10-10 Mortgage

The 80-10-10 mortgage is an innovative way for people who do not have enough money to secure financing. This is very much applicable if you have insufficient funds to make a huge down payment on the property you want to buy. For this type of mortgage, a buyer is required to come up with only 10 percent of the total acquisition price of the property. This will serve as down payment. The remaining 90 percent will be covered by two simultaneous loans known as the primary mortgage and the piggyback loan. The first home loan covers 80 percent, while the second takes care of the remaining 10 percent balance.

It is worth noting that getting the piggyback loan from the same bank that provided the primary mortgage is possible but more difficult to achieve. In order to expedite the approval of the piggyback loan, you should consider looking at offers from other lenders. Besides, shopping around for piggyback loans will get you more competitive interest rates.

Common Reasons People Get 80-10-10 Mortgage

The most common reason for this type of financing scheme is to avoid additional PMI (private mortgage insurance), which is required for purchases with down payments of less than 20 percent of the total purchase price. Many people want to avoid PMI costs because fees associated with this kind of mortgage insurance can be very expensive, sometimes reaching as much as one percent of the annual total property value. However, it is worth noting that once your loan repayments have reached 20 percent of the value of the property, you will no longer be required to secure a PMI.

On top of the savings from avoiding PMI costs, another common reason getting this type of mortgage can be advantageous is that it can prevent your mortgage from being classified as a jumbo home loan. Jumbo mortgages usually carry higher interest rates and premiums because the risk of borrowers not being able to pay up a big loan is higher. With a piggyback home loan, you can go ahead with a large purchase and still enjoy the benefits of a regular or standard home loan. Lastly, people who need to buy homes fast prefer this financing setup because it makes it easier to save for the down payment, which is just 10 percent of the purchase price.

Drawbacks of 80-10-10 Mortgage

One major drawback of getting this type of loan is the high interest rate. A piggyback loan is not secured or backed by any collateral; therefore, the interest rate applicable is higher because of the risks of non-repayment. Rates for piggyback loans are about 2 percent higher than on other loans, and the common payment period is around 15 years. Before you decide to apply for an 80-10-10 mortgage, make sure that the money you will save by avoiding PMI fees will be more than the additional costs incurred due to the higher interest rate of the piggyback loan. If the interest charges are greater than your savings, you would be better off getting one big mortgage to cover the remaining 90 percent of the property’s price.

80-10-10 Mortgage

The 80-10-10 mortgage is a type of mortgage in which three different methods of payment are used to purchase a house. The first 80 percent of the purchase price comes from a primary mortgage. The next 10 percent comes from a secondary, piggyback mortgage. The remaining 10 percent comes from a cash down payment by the buyer. This arrangement is typically used by buyers who want to eliminate the need for paying private mortgage insurance. This will save the home buyer some money every month when she makes her mortgage payment, but it will require her to make two mortgage payments every month.

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