A buyer pays $500,000 using a $400,000 first mortgage, a simultaneous $50,000 second mortgage and a $50,000 cash down payment. What is this financing structure commonly called?
Correct Answer
B) An 80-10-10 piggyback: 80% first mortgage, 10% second mortgage and 10% down
B. This is an 80-10-10 piggyback structure. Divide each component by $500,000: the first is 80%, the second 10%, and cash 10%. The two loans together finance 90%, but the three-part label preserves the distinction between the liens. Scope and exceptions: A piggyback may avoid PMI in an eligible conventional structure, but is not necessarily cheaper. Compare both loans’ interest, fees and repayment terms with a single loan plus PMI. It does not remove property-insurance requirements. Source: Piggyback example and cost comparison — https://www.consumerfinance.gov/ask-cfpb/what-is-a-piggyback-second-mortgage-en-1955/
Why This Is the Correct Answer
B. This is an 80-10-10 piggyback structure. Divide each component by $500,000: the first is 80%, the second 10%, and cash 10%. The two loans together finance 90%, but the three-part label preserves the distinction between the liens. Scope and exceptions: A piggyback may avoid PMI in an eligible conventional structure, but is not necessarily cheaper. Compare both loans’ interest, fees and repayment terms with a single loan plus PMI. It does not remove property-insurance requirements.
Why the Other Options Are Wrong
Option A: Not a recognized structure, because seconds may not close simultaneously
A simultaneous second is a recognized financing structure.
Option C: An 80-20 structure, in which no down payment is required at all
An 80-20 split does not match the supplied second loan or cash contribution.
Option D: A 90-10 structure, since the 2 loans together reach 90% of value
It combines the liens and does not identify this three-part arrangement.
Exam Tip
The label describes funding proportions, not a guarantee of lower total cost.
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