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.

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.

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.

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.