Many conventional homebuyers put down less than 20% and pay private mortgage insurance, or PMI, as part of the monthly housing expense. Another possible structure uses two mortgages at the time of purchase: a larger first mortgage and a smaller second mortgage. This is sometimes called a piggyback mortgage.
The strategy does not erase a cost. Instead, it replaces one possible expense—monthly PMI—with the rate, payment, and closing terms of a second loan. It can be worth comparing, but it is not automatically the better option.
How the first-and-second mortgage structure works
The first mortgage finances the largest portion of the purchase and holds the first lien on the property. A second mortgage, which may be a closed-end home equity loan or another eligible subordinate-financing product, finances another portion. The buyer contributes the remaining funds and eligible closing costs.
One common objective is to keep the first mortgage at or below 80% of the property's value so borrower-paid PMI is not required on that first loan. The lender still evaluates the combined loan-to-value ratio, both monthly payments, credit, income, assets, property, and program rules.
PMI loan vs. first-and-second mortgage
| Question | One first mortgage with PMI | First mortgage plus second mortgage |
|---|---|---|
| Monthly obligations | One loan payment plus PMI, taxes, and insurance | Two loan payments plus taxes and insurance |
| Interest rates | Rate on the first mortgage | Separate rates and terms; a second mortgage often carries a higher rate than the first |
| How the extra cost ends | PMI may be cancellable when eligibility requirements are met | The second payment continues until the second loan is paid off, refinanced, or otherwise satisfied |
| Up-front costs | Costs for one mortgage plus applicable PMI terms | May include costs for both loans |
| Budget test | Review total payment with PMI | Review the combined first-and-second payments and possible payment changes |
When this option may be worth reviewing
- You have less than 20% available for the down payment but want to compare alternatives to monthly PMI.
- You can qualify using the payments and balances of both loans.
- You have a plan to reduce or pay off the second mortgage.
- A side-by-side estimate shows a better fit for your expected time in the home and monthly budget.
What to compare before deciding
Ask for both options on the same purchase price and down payment. Then compare:
- Total monthly housing payment—not just the first-mortgage payment
- Interest rate, annual percentage rate, and payment terms for each loan
- Whether the second mortgage is fixed or variable
- Closing costs and cash required at closing
- How quickly PMI could be cancelled on the one-loan option
- How and when you plan to pay off the second mortgage
- The effect of a future sale or refinance, when both liens generally must be addressed
Already paying PMI?
You may not need a new second mortgage to remove it. For many conventional loans, you can ask the servicer to cancel PMI when the scheduled principal balance reaches 80% of the home's original value, subject to payment-history, property-value, and other requirements. Automatic termination rules may also apply. FHA mortgage insurance and other program-specific insurance follow different rules, so contact your servicer before changing loans.
Frequently asked questions
Can a first and second mortgage avoid PMI?
Potentially. A qualifying structure may keep the first mortgage at a loan-to-value level that does not require borrower-paid private mortgage insurance, while a second mortgage finances another portion of the purchase. Eligibility and terms vary.
Is a second mortgage always cheaper than PMI?
No. Compare both loan payments, rates, closing costs, future rate changes, and the time you expect to keep each loan against the cost and cancellation path of PMI.
Can I cancel PMI on a mortgage I already have?
For many conventional loans, federal rules provide a path to request PMI cancellation when the scheduled principal balance reaches 80% of the home's original value, subject to requirements. Contact your mortgage servicer for the rules that apply to your loan.
Consumer resources: Read the CFPB's guidance on when PMI may be removed and how second mortgages work.