There are some situations where you may end up having two mortgages on one home – a first and a second mortgage. There are a number of reasons for doing this, but they all raise the question of what your effective mortgage rate will be – the "blended rate" of the two loans.

First and second mortgages rarely have the same interest rate – the rate on the subordinate loan is almost always higher. This Blended Rate Mortgage Calculator will show you what the effective combined rate on the two loans will be, as well as your total and individual monthly payments for the two home loans.

Why use two mortgages to buy one home?

A piggyback loan is a money-saving strategy that is coming back into favor among mortgage borrowers.  It involves using two loans, rather than one, to buy a home. One covers the bulk of the cost, while the other makes up the difference.

One of the main reasons for using a piggyback loan is to avoid paying for private mortgage insurance (PMI). PMI is required on mortgages with less than 20 percent down and has an annual cost of about one-half to one percent of your loan amount, which is added onto your mortgage payments.

What some borrowers do is use a piggyback loan to cover part of their down payment so they don't need PMI on their primary mortgage. For example, they may take out a primary mortgage to cover 80 percent of the cost of the home, make a 10 percent down payment and use a piggyback loan to cover the other 10 percent.

The piggyback loan has a higher rate than the primary mortgage, but it may still be cheaper than paying for PMI.

Another use of a piggyback loan is to avoid taking out a jumbo loan when buying a high-value home.  A jumbo mortgage is one that exceeds the maximum loan limits allowed by Fannie Mae and Freddie Mac, which for single-family homes range from $417,000 to $625, 500, depending on local home values.

Jumbos typically have higher mortgage rates than loans that conform to Fannie/Freddie limits, so a borrower may use a conforming Fannie/Freddie loan to pay for part of their home, then use a piggyback loan to cover the rest.

 

Another second mortgage: Home equity loans

Home equity loans are also a type of second mortgage.  Though they aren't used to purchase the home, but to borrow against the equity in a home you already own, they are still a second lien on your home. You can use this calculator to figure the blended rate for this type of loan as well.

 

Uses for this calculator

This calculator can serve several purposes:

  • To figure the effective combined rate of a primary mortgage and piggyback loan:
  • To determine the effective combined rate of your current mortgage and a home equity loan:
  • To help you choose between a home equity loan and a cash-out refinance, by comparing the effective blended rate to the mortgage rate you could get on a cash-out refinance:
  • Determine the blended rate for loans with unequal terms and calculate your total interest costs for both loans

 

Using the Blended Mortgage Rate Calculator

Follow these steps:

  • Enter the purchase price of your home and intended down payment.
  • Choose if you wish to generate a monthly or yearly amortization schedule
  • Enter the loan amount, interest rate and term length for both loans
  • Note the two loans do not need to be the same length
  • If you choose the "interest-only" option, the calculator will treat the loan as a balloon mortgage with the entire principle due at the end of the term
  • For more information, click on individual entry headings for definitions and explanations

When you are done, click "View report" for a detailed breakdown of the combined loans, including an amortization schedule and accumulated interest costs.

 Looking to buy a home using a blended mortgage? Use the "Get Free Quote" button to start the process by requesting personalized rate quotes from mortgage lenders.

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