An 80-10-10 mortgage is a type of financing arrangement that involves taking out two mortgages to purchase a home. The numbers 80-10-10 represent the breakdown of the loan amounts as a percentage of the home’s purchase price. Here’s how the structure typically works:

1. **80% First Mortgage:** The first mortgage covers 80% of the home’s purchase price. Borrowers often aim to secure a conventional mortgage with favorable terms for this portion of the loan.

2. **10% Second Mortgage:** The second mortgage covers 10% of the home’s purchase price. This loan is often structured as a home equity loan or home equity line of credit (HELOC). The interest rate on the second mortgage may be higher than that of the first mortgage.

3. **10% Down Payment:** The borrower provides a 10% down payment from their own funds. This down payment, combined with the 80% first mortgage and the 10% second mortgage, adds up to the total purchase price of the home.

The purpose of the 80-10-10 structure is to avoid paying private mortgage insurance (PMI), which is typically required by lenders when the down payment is less than 20% of the home’s purchase price. By structuring the financing in this way, borrowers can achieve a loan-to-value (LTV) ratio of 90%, avoiding the need for PMI.

It’s important to note a few considerations with 80-10-10 mortgages:

– **Interest Rates:** The interest rates on the first and second mortgages may differ. The rate on the second mortgage is often higher, reflecting the increased risk for the lender.

– **Payments:** Borrowers will make two separate mortgage payments each month—one for the first mortgage and another for the second mortgage.

– **Risk:** While this structure can be beneficial for avoiding PMI and obtaining financing with a lower down payment, borrowers should be aware of the risks associated with having two mortgages, particularly if interest rates rise in the future.

The 80-10-10 mortgage structure can be advantageous for homebuyers who want to avoid PMI and have the financial capacity to manage two separate mortgage payments. However, it’s essential for borrowers to carefully consider their financial situation and assess whether this type of mortgage aligns with their long-term goals and risk tolerance.