A piggyback mortgage is a combination of two loans where one is added to the other. It combines a standard first mortgage with a home equity line of credit. The rate charged on the second loan is slightly higher compared to the rate in the first loan, but it is tax deductible. The second loan is either fixed or adjustable rate and is piggybacked on the top of the first loan. This type of loan helps to avoid paying mortgage insurance every month.

Piggy back loan has been developed to enable borrowers make lesser down payments and avoid paying MI premiums. This loan also helps the borrower to avoid higher rates associated in jumbo mortgages.

A variety of packages are available under this type with some common offerings include a fixed rate first lien with a variable rate HELOC second lien, an adjustable rate first lien with a fixed rate second lien, package where both liens have adjustable rates. Usually the first one is a long term mortgage for 15, 20 or 30 years. The borrower can purchase a home with zero down payments by taking out an 80% mortgage and a 20% loan or line of credit.

The negative side of this loan package is that it can limit your other borrowing capabilities and also minimize your ability to use your home as equity for other loans.
More References

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