Skip to content

Second Mortgages Explained: The 80/20, Piggyback, and More

second mortgage

When you hear the phrase “second mortgage,” a negative connotation may come to mind.

You could be thinking, “Why would I need a second mortgage? I’m not in financial distress!”

You might even ask yourself if it’s possible to have two mortgages on one house at the same time.

These are normal reactions. After all, one mortgage is bad enough, right? Well, there are some reasons why you’d have two, which I’ll explain in detail below.

What Is a Second Mortgage?

  • It’s a home loan that is subordinate to a first mortgage on the same property
  • Typically taken out to extend financing for a home purchase (less money down)
  • Or to tap home equity after you obtain your primary financing
  • Not necessarily a sign of distress or being stretched too thin

A second mortgage is simply a home loan that is subordinate to a first mortgage on the same property.

For example, if you already have a mortgage on your home, and take out another one, it would be considered a second mortgage.

It is also known as a “junior lien” because it paid off second in the event of a foreclosure. The senior lien, which is in the first position, has priority in this regard.

A common reason to take out a second loan is to extend financing if purchasing a home. You can get two loans to reduce or completely eliminate the down payment required.

Or you might want to tap your home equity without losing the low interest rate on your first mortgage.

In this case, a home equity loan or home equity line of credit (HELOC) would be the way to go.

Second Mortgages Used to Be Very Common

While 20% down on a home purchase may have been the norm for your parents, zero down (or very close to it) seems to be the standard today.

Prior to the mortgage crisis in the late 2010s, it was quite common for borrowers to hold two mortgages.

Typically a traditional first mortgage and a home equity line or loan, which together formed a combo loan.

This allowed home buyers to purchase property with no down payment whatsoever, while avoiding mortgage insurance at the same time.

High home prices often made it a necessity because people didn’t have the money needed for a down payment.

Today, we’re not far off. Home buyers can get FHA loans with just 3.5% down, or a loan backed by Fannie Mae or Freddie Mac with just 3% down.

While both those options provide financing in a single home loan, they require you to pay mortgage insurance. And the loan amount can’t exceed the conforming limit.

So for some home buyers, second mortgages have become appealing again, especially if two mortgages price out better than one.

But the main reason homeowners take out second mortgage today is tap their equity for cash, whether it’s for home improvements bills, or to purchase another property.

Jump to second mortgage topics:

Types of Second Mortgages
The Piggyback Loan
Standalone Second Mortgage
Home Equity Loan or Line?
Second Mortgage Example
Second Mortgage Term Length
How Do You Take Out a Second Mortgage on Your Home?
Second Mortgage Rates Are Typically Higher
Advantages of Second Mortgages
Disadvantages of Second Mortgages
Reasons to Take Out a Second Mortgage
Are Second Mortgages Still Around?

Types of Second Mortgages

second mortgage types

The Piggyback Loan

  • A second mortgage that sits behind a first mortgage
  • Taken out at the same time (single closing process)
  • Extends financing and reduces down payment requirement
  • A common example is an 80/10/10 or 80/20

piggyback loan

As mentioned, some homeowners carry both a first and second mortgage, often closed concurrently during a home purchase transaction.

In these cases, the 2nd mortgage is referred to as a “piggyback loan” because it is taken out at the same time and sits behind the first mortgage.

Piggyback mortgage loans are used to extend financing, allowing borrowers to put down less on a home, or break up their loan balance into two separate amounts to produce a more favorable blended rate.

Two common formulas for a piggyback loan are an 80/10/10 loan or an 80/20 loan, the latter especially helpful if you have little in your bank account.

An “80/10/10 mortgage” translates to an 80% loan-to-value ratio (LTV) on the first mortgage, 10% LTV on the second mortgage, and a 10% down payment.

In essence, you’re putting down just 10%, but keeping your first mortgage at the important 80% LTV or less threshold to avoid mortgage insurance.

You may also get a more competitive interest rate if your first mortgage is at 80% LTV or lower.

For example, if the purchase price were $100,000, you’d get a first mortgage for $80,000, a second mortgage for $10,000, and bring $10,000 to the table in down payment money.

An “80/20 mortgage” is an 80% 1st mortgage, a 20% 2nd mortgage, and zero down payment.  Uh oh. These are less common today than they were in the early 2000s because lenders have become much more risk-averse to these types of loans.

Using the same example from above, you’d have an $80,000 first mortgage and a $20,000 second mortgage with no down payment whatsoever.

Standalone Second Mortgage

  • Opened after a first mortgage (at a later date)
  • Used to access your home equity instead of a cash out refinance
  • Once you’ve owned your home for some period of time
  • Helpful if you don’t want to disrupt your existing home loan but need cash

Second mortgages can also be opened after a first mortgage transaction is closed, as a source for additional funds.

These are known as “standalone second mortgages” because they are taken out separately, without disrupting the first mortgage.

Let’s say you bought that same $100,000 home in our first example, but came in with a 20% down payment. Over time, you would gain equity as the mortgage was paid down.

After say 10 years, you’d have quite the equity cushion, assuming home prices also appreciated. Let’s pretend the home is now worth $125,000, and your remaining loan balance on your current mortgage is $75,000.

You’ve got $50,000 in equity to play with. You can either refinance your first mortgage to access that money, or alternatively open a standalone second mortgage to tap into it.

If it’s the latter option, homeowners can either elect to take a lump sum of cash in the form of a home equity loan, or opt for a HELOC, which allows them to draw specific amounts of money when needed using an associated credit card.

Keep in mind that you need equity in your home to execute this type of transaction.

Also note that a non-purchase money second mortgage will be treated as cash out if you refinance it in the future, even if it’s a rate and term refinance (source: Fannie Mae).

Home Equity Loan or Line? There’s a Big Difference

  • There are several different types of second mortgages available
  • Including both closed-end loans and open-end lines of credit
  • Some are used to facilitate a home purchase (combo loan)
  • While others are taken out after you own a home to pay other expenses

We know a second mortgage is any home loan that is subordinate to (comes after) a first mortgage.

So if you already have a mortgage and add on another one, it’s a second mortgage. Pretty simple, right?

But what type of second mortgage are we taking about? It could be a home equity loan or a home equity line of credit (HELOC).

A home equity loan is a closed-end mortgage that allows you to borrow a lump sum amount, such as $50,000.

You pay interest on the full amount borrowed immediately. These funds are deposited in your bank account and can be used for any purpose.

If used for a home purchase, the money is already exhausted and will need to be paid back monthly along with your first mortgage.

They are typically fixed-rate loans, meaning the mortgage rate and payment does not change.

A HELOC is a little bit different. It’s an open-ended line of credit, similar to a credit card that allows you to borrow if and when needed. Or not at all (rainy day fund).

You get a fixed line of credit, or draw amount, which you can use when needed, except it’s secured by your home. The money can be used for any reason.

HELOCs are tied to the variable prime rate, and thus are adjustable-rate mortgages.

After the draw period ends, the amount borrowed must be paid back monthly during what’s called the repayment period.

HELOCs come with an interest-only option during the initial draw period, as do some home equity loans early on.

Tip: A HEL/HELOC can also be a stand-alone first mortgage, taken out by a homeowner when their property is free and clear (paid off), or it can be used to refinance an existing first lien.

Second Mortgage Example

1st vs. 2nd mortgage comparison
$500,000 Home1st Mortgage
2nd Mortgage
Loan Amount$300,000$100,000
Mortgage Rate2.75%7.5%
Loan Term30 years20 years
Monthly Payment$1,224.72$805.59
Total Payment$2,030.31

Let’s pretend you have an existing first mortgage with a loan amount of $300,000 on a home valued at $500,000.

The mortgage rate is a low 2.75% and it’s a 30-year fixed, meaning the rate can never go up.

You want some cash to do some home improvements, but don’t want to disturb your existing loan (because of that sweet low rate).

A simple solution is to take out a second mortgage for the desired amount.

After inquiring with a lender, you’re told the most you can borrow is up to 80% of your home’s appraised value.

So you multiply .80 x 500,000 and come up with 400,000. This means you can borrow up to $100,000.

You keep the existing first mortgage with the loan amount of $300,000, and add a second mortgage with a loan amount of $100,000.

Now you have two mortgage payments to make each month, but you’ve got $100k in the bank. And your low-rate first mortgage remains super cheap.

Second Mortgage Term Length

You might be curious how many years a second mortgage can be. Or what the average loan term is.

Many second mortgages also have 30-year loan terms, just like the popular 30-year fixed mortgage.

However, they can also be much shorter too, as little as 10 years. This makes sense if you borrow a small amount and don’t want to take decades to pay it back.

For example, you might not need 30 years to pay back $30,000. Nor will the lender want you to take that long to pay it back.

Common second mortgage terms are 10, 15, 20, and 30 years. And remember that home equity lines have a draw period and repayment period.

This draw period can range from 3-10 years, at which point repayment begins for the remaining 20-27 years.

How Do You Take Out a Second Mortgage on Your Home?

  • You can take one out at the same time you take out a first mortgage
  • Or months or years later after you close your first mortgage
  • Many homeowners open HELOCs so they have access to cash if and when needed
  • They don’t need to borrow the money, but it’s available just in case

It’s common for certain banks to specialize in second mortgages, such as Spring EQ.

Often, you’ll get your first mortgage from one bank/lender and your second mortgage from a different company entirely.

In the case of the piggyback second, you would likely have the first mortgage lender point you in the direction of a second mortgage lender.

By that, I mean they’d likely have a lending partner they work with that only offers second mortgages.

They would facilitate the transaction to ensure everything ran smoothly between the two lenders, handling all the paperwork so you wouldn’t have to do twice the amount of work.

Or even interact with the loan officer at the other bank.

The same goes with mortgage brokers – they’re typically able to line up financing for a first and second mortgage with two different lenders concurrently.

You would still need to be underwritten by the second lender, as you would the first, and gain approval and close on the loan at the same time the first mortgage closes. You may even need to pay an appraisal fee to that lender as well.

If you already have a mortgage and simply want a second one, you’d shop for the second mortgage as you would a first mortgage, and then apply in similar fashion.

However, the process should be a lot easier and faster if it’s a standalone second such as a home equity loan or HELOC. Less paperwork and fewer fees too.

But you can expect the same basic underwriting criteria, such as income, asset, and employment verification, along with a credit pull.

The upside is that the closing costs should be a lot lower on the second mortgage, even if the rate is higher. That brings us to another important topic.

Second Mortgage Rates Are Typically a Lot Higher

  • One major downside to second mortgages is the interest rates can be quite high
  • Sometimes double that of first mortgage rates or even in the double-digits
  • Interest rate can be fixed or variable depending on loan type
  •  HELOCs are tied to the prime rate and can go up/down whenever the Fed moves rates

Curious if second mortgage rates are higher, lower, or the same as rates on first mortgages?

Well, monthly payments on second mortgages are typically pretty low relative to first mortgages, but only because the loan amount is generally much smaller.

For example, if you have a first mortgage of $400,000 and a second mortgage of $50,000, the monthly mortgage payment will be a lot lower on the second, even if the mortgage rate is high (and they can be). That’s the saving grace.

But interest rates on second mortgages will generally be much higher than those on a first mortgage.

For example, the rate could be in the double-digits, even as high as 12% depending on property type, equity in your home, and type of second mortgage.

Second mortgage rates are higher for several reasons, one being that they’re subordinate to the first mortgage. That means they’re riskier to the lender because they get paid out second in the case of a foreclosure.

Another reason they tend to be higher is because the loan amounts are small, as noted, so less interest is earned by the bank.

And the LTVs are often quite high, meaning there isn’t much of an equity cushion if home prices take a turn for the worse.

As mentioned, several loan types are available. Second mortgages are offered with both adjustable rates and fixed-rate options.

Home equity loans are typically fixed and HELOCs are always variable rate loans tied to the prime rate.

If you go with a fixed option, expect the rate to be higher at the outset because you’re paying for the relative safety and stability of a rate that won’t adjust.

Definitely take the time to compare rates, as you would on a first mortgage, as they can vary considerably by bank/lender.

Tip: You might be able to get a second mortgage with bad credit but the interest rate will likely be quite high and the LTV could be fairly limited as well.

Advantages of Second Mortgages

  • Can reduce amount of cash needed for down payment
  • Can avoid private mortgage insurance
  • May produce a lower overall blended interest rate
  • Or keep the loan amount below the conforming limit

Second mortgages that are closed concurrently with the first mortgage during a purchase transaction are referred to as “purchase money second mortgages.”

As mentioned earlier, these second mortgages allow homeowners to come in with a smaller down payment, or no down payment at all.

During a purchase transaction, the homeowner can break up the total loan amount into two separate loans called a combo loan.

The risk is split between the two loans, allowing higher combined loan-to-values and potentially lower blended interest rates.

Second mortgages in the form of piggyback loans also allow homeowners to avoid paying private mortgage insurance.

If the first loan is kept at or below 80% loan-to-value, PMI needn’t be paid. The savings can be substantial, perhaps hundreds of dollars per month.

In addition, breaking up your loan amount between a 1st and 2nd mortgage may allow you to keep the first under the conforming loan limit.

This could help you obtain a lower interest rate if you’re in jumbo loan territory, or simply make it easier to qualify.

Second mortgages can also be opened after the purchase transaction is complete.

This can be handy if you need cash, but want to avoid refinancing the first mortgage, e.g. if it has a very low fixed mortgage rate.

At the moment, millions of homeowners have first mortgage rates below 4%. So they’re choosing to open a second mortgage instead of a cash out refinance.

Disadvantages of Second Mortgages

  • Results in additional debt and another monthly payment
  • May come with high interest rates
  • Reduces your available home equity
  • Could limit your ability to borrow more or refinance

Once you’ve got a second mortgage, it will be increasingly difficult to get any additional financing, such as a third mortgage.

Interest rates on second mortgages are also generally high compared to first mortgages. It’s quite common to receive an interest rate in the double-digits on a 2nd mortgage.

You could get a better deal with just one mortgage, or possibly even by paying mortgage insurance.

Some home equity lines/loans come with additional fees, such as an early closure fee, as well as minimum draw amounts that may exceed your personal needs.

Make sure you read all the fine print to avoid any unwanted surprises.

Last but not least, second mortgages mean more debt, a higher mortgage payment, more interest due, and can extend the amount of time it takes to pay off your home.

It’s also possible to get in over your head and lose your home if you can’t keep up with both monthly payments. After all, you have to repay the loan at some point.

That being said, they shouldn’t be viewed in a negative light, rather just another option to consider when seeking home loan financing.

Reasons to Take Out a Second Mortgage

  • To extend financing (get zero down or low-down financing)
  • To avoid mortgage insurance by breaking the loan up into two
  • To keep the first mortgage at/below the conforming limit for a lower interest rate
  • To fund home improvements, pay for college tuition, pay off an auto loan
  • For debt consolidation (pay off high-interest credit cards)
  • To have an emergency source of cash at the ready
  • To fund an additional home purchase (down payment)

Are Second Mortgages Still Around?

A decade ago, banks and mortgage lenders greatly reduced the availability of second mortgages.

This was related to the housing crisis that took place in the late 2010s. However, since 2023 they have become a lot easier to come by. And in 2024, countless banks, credit unions, and even nonbanks offer them.

The difference today is that the LTV is often restricted to say 85-90%, versus 100% during the housing boom. And you might need a slightly higher FICO score to get approved.

If you want a HELOC, you’ll probably want to visit a bank or credit union as they are the biggest issuers (see top HELOC lenders).

Conversely, nonbanks like Rocket Mortgage and Figure Lending have been rolling out home equity loan offerings.

Interestingly, the nation’s top home equity loan lender is Discover home Loans, a credit card issuer.

Be sure you put in the time to shop because rates, fees, and terms can vary considerably, perhaps more so than rate/fees on fist mortgages.

Colin Robertson

16 thoughts on “Second Mortgages Explained: The 80/20, Piggyback, and More”

  1. I have had both Chase & BofA as my Mortgage servicer, both told me on my home in Oregon they would not reconsider PMI until 60 months had passed. Maybe the laws vary from state to state… but the chances your mortgage will end up being serviced by one of them as high. And PMI is only deductible under 110,000.

  2. looking for a 2nd mortgage for one year on a home in Rancho Park in Los Angeles, ca 90064.

    House is on for sale at $1,450K.
    1st mortgage is 700K.

    credit score is 600.

  3. I am buying a house – was going to do an 80/10/10 – I got the first mortgage approved and before starting the process for the 2nd, my loan officer told me (for the first time) that getting a second lien on the house will raise the rate of the first mortgage – is that legal?

  4. We have a first mortgage with a mortgage co, no problem. About four yrs after we got a second mortgage from a personal lender, now the mortgage is done , she wants her money , we are having trouble getting a loan , she is threading to make us sell our house,,, doesn’t, the first mostgage people can make her stop doing this ,because we have had no trouble paying either , second mortgage just wants to get out of it ,can she make us sell are home

  5. Diane,

    I don’t know the terms of your agreement with her, may want to read the fine print in the agreement. Generally, second lien lenders won’t foreclose unless there’s sufficient equity for them to get paid back after the first lender is made whole.

  6. I have mortgage 80% and 20% I’m ok on my 80% but on my 20% no, so they say I’m in foreclosure whit the 20% so he tell me the house is not my anymore but I speak with the 80% and they said they can’t duet that because we are the majority in the loan …so what can I do?? I live in Houston tx.

  7. Gilberto,

    In general, it’s possible for junior lienholders (second mortgage lenders) to start the foreclosure process, though they are secondary to the first lien lender in terms of recovering monies. In some cases they may then negotiate with the first lien lender to improve their position so they don’t wind up with nothing.

  8. Hi Colin,

    Is it possible to take out a second mortgage on purchasing investment property to avoid 80% loan to value? Would mezzanine debt be the only option? Thank you,


  9. Mike,

    To avoid going over 80% or just getting 80% combined? It’s certainly harder to find seconds on non-owner occupied properties these days, but there might some lenders out there. You may want to look at non-QM lenders if traditional lenders can’t do it.

  10. We want to purchase a new home but will not have a down payment until we sell our first home. Can we use a second mortgage as our down payment to purchase our next home and pay off the second mortgage after we sell our first home?

  11. Lisa,

    Lenders generally consider borrowed funds secured by an asset (such as a home) as an acceptable source of funds for down payment, but you have to consider the monthly cost of the second mortgage when calculating DTI on the subsequent home purchase, and be mindful of early payoff of the second (are there any fees or closing costs recaptured?).

  12. I’m getting a 80/15/5 loan. Got conditionally approved on the 80%, but been waiting on approval on the 15% since October , over 2 months now, is this process normal for this time frame

  13. TP,

    It can certainly take longer to line up a combo mortgage if you’re dealing with two lenders, but that seems pretty excessive, especially if it’s a purchase and you need to close by a certain date. May want to ping them to see what the hold up is.

  14. I bought a home four years ago that we knew needed updating but turned out to need a lot more than just cosmetic updates (plumbing, a/c, termites…you get the idea). We are aggressive diyers so aside from the time investment are not too freaked out. But we are starting to need more cash for the renovation/repair. We refinanced last year to get a lower rate, and I’ve considered doing a HELOC or cash-out refinance to tap into our equity (our housing values have gone up significantly in the time we’ve been in the house and even in the current state, have seen $100k in valuation). I’d like to tap into that $50k of that new equity to continue/accelerate the renovation but was told an appraiser would not approve us because we are mid-remodel. And to hold off until the significant repairs are completed. Do I keep looking for someone to do a desk appraisal or is that unlikely in this situation>. Are there any lenders that would accept the appraisal from last year instead of doing a new inspection/visit of the property.

  15. Melissa,

    Lenders are wary of extending new financing if/when the property is under renovations because of the uncertainties involved. If requesting cash out on top of it they’ll likely be even more wary, requiring an in-person appraisal unless the LTV ratio is super low. If you find alternative financing that doesn’t require one, you might pay the price for it via a higher interest rate. The upside is you might be able to eventually refinance out of that loan in the future so it’d be temporary.

Leave a Reply

Your email address will not be published. Required fields are marked *