80-10-10 Mortgage

80-10-10 Mortgage: Meaning, Benefits, Risks, and Example What is an 80-10-10 mortgage? An 80-10-10 mortgage is a two-loan arrangement (a type of piggyback mortgage) that combines:
A first mortgage for 80% of the home's purchase price (usually a fixed-rate mortgage).
A second mortgage for 10% of the purchase price (often a home equity loan or a HELOC, typically adjustable).
* A 10% cash down payment by the buyer. Explore More Resources

The primary purpose is to reach the equivalent of a 20% equity position at closing without writing a single 20% down payment, thereby avoiding private mortgage insurance (PMI). Key takeaways
* Structure: 80% first mortgage + 10% second mortgage + 10% down.
* Main advantage: avoids PMI while lowering the upfront cash needed versus a single 20% down payment.
* Trade-offs: you carry two loans (often with different rates and terms), which can mean higher total monthly payments and interest-rate risk on the second loan.
How it works
* First mortgage: generally a conventional fixed-rate loan covering 80% of the purchase price.
* Second mortgage: commonly a HELOC (interest on the amount drawn, variable rate) or a home equity loan (fixed payments, fixed rate). It covers 10% of the purchase price.
* Down payment: buyer contributes the remaining 10% in cash.
Because lenders see the combined loans as leaving the borrower with 20% equity at closing, PMI is usually not required. Explore More Resources

Benefits
* Avoids PMI: eliminates the ongoing PMI premium that borrowers with single loans above 80% LTV would otherwise pay.
* Lower upfront cash requirement than a single 20% down payment.
* Flexibility of a HELOC: a HELOC can act as a credit line for future needs (renovations, emergencies), and interest is charged only on amounts drawn.
* Useful bridge financing: helpful for buyers who haven’t yet sold an existing home and need temporary funds for a new down payment.
Risks and drawbacks
* Two loans to manage: more complexity, two sets of closing costs, and possibly two monthly payments.
* Higher interest on the second loan: HELOCs and home equity loans often carry higher rates than first mortgages, partially offsetting PMI savings.
* Adjustable-rate exposure: if the second loan is variable, monthly payments can increase if interest rates rise.
* Market risk: in a housing downturn you could become underwater (owing more than the home’s value) if prices fall.
* Qualification: lenders will underwrite both loans, so income, credit score, and debt-to-income ratios matter.
Example For a $300,000 home:
First mortgage (80%): $240,000
Second mortgage (10%): $30,000
* Down payment (10%): $30,000 Compared with a single 90% mortgage (which would likely require PMI), the 80-10-10 approach can lower or eliminate PMI and may secure a better rate on the primary mortgage, but it introduces a second-loan payment and potential rate risk. Explore More Resources

When to consider an 80-10-10 mortgage
* You have about 10% available for a down payment and want to avoid PMI.
* You expect to pay off the second loan quickly (e.g., from proceeds of a home sale).
* You prefer a lower rate on the primary mortgage and accept the complexity and potential volatility of a second loan.
Alternatives
* Make a full 20% down payment to avoid PMI with a single mortgage.
* Accept a single loan with PMI if that is cheaper overall.
* Look into FHA or other government-backed loans (note these have their own mortgage insurance requirements).
* Consider lender-paid mortgage insurance or other lender programs that adjust rate vs. fees.
Bottom line An 80-10-10 mortgage can be a useful tool to avoid PMI and reduce upfront cash needs, but it introduces a second loan with its own costs and risks. Compare total monthly payments, interest costs, and long-term scenarios (including rate changes and housing-market risk) before choosing this structure. Consult your lender and a financial or tax advisor to evaluate whether it fits your situation.