What Is an 80-10-10 Mortgage?
Let me explain what an 80-10-10 mortgage really is. It's a setup where you get two mortgages at the same time: the first one covers 80% of the home's value, the second covers 10%, and you put down 10% in cash. This is different from a standard mortgage where you'd need a full 20% down payment.
You should know this is a form of piggyback mortgage, designed to make buying a home more accessible without the extra cost of private mortgage insurance.
Key Takeaways
- The structure includes a fixed-rate first mortgage at 80% of the home's cost, a 10% home equity loan as the second, and your 10% cash down payment.
- This approach cuts your down payment needs and skips PMI, making it easier to afford a home upfront.
- Be prepared for potentially higher monthly payments, especially if interest rates on the adjustable second loan go up.
Understanding an 80-10-10 Mortgage
If you're buying a home with less than 20% down, lenders usually require PMI to protect themselves if you default. That's where the 80-10-10 comes in—it's a way for you to sidestep PMI and keep your monthly payments from ballooning.
These mortgages gain popularity when home prices are climbing fast, as saving for a 20% down payment becomes tough. With a piggyback setup, you can borrow more based on what you have available now.
Typically, the first mortgage is fixed-rate for stability, while the second is adjustable, often as a home equity loan or HELOC.
Benefits of an 80-10-10 Mortgage
The second mortgage works like a credit card but with lower rates because it's backed by your home's equity. You only pay interest on what you use, and you can pay it down anytime to cut costs. Even after paying it off, the HELOC stays open for emergencies, like repairs or tuition.
This is useful if you're buying before selling your current home—use the HELOC for part of the down payment and repay it once your old place sells. HELOC rates are higher than conventional mortgages, but if you plan to clear it quickly, that might not matter much.
In a rising market, your equity grows with the home's value, but watch out during downturns—you could end up owing more than the home is worth.
Example of an 80-10-10 Mortgage
Take the Doe family eyeing a $300,000 home with $30,000 down, which is 10%. A standard 90% mortgage would mean PMI and higher interest, adding to their monthly bill.
Instead, they go for an 80% mortgage on $240,000, likely at a better rate without PMI, plus a 10% HELOC for $30,000. Their down payment stays at 10%, but they dodge PMI, secure lower rates, and end up with smaller monthly payments overall.
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