The secondary mortgage acts like a credit card, but with a lower interest rate because the equity in the home is backing it. 

The loan only incurs interest when the borrower uses it. Meaning the borrower can pay off the home equity loan or HELOC in full or in part and avoid the interest payments on those funds. 

And once settled, the HELOC credit line remains. These funds then can act as a reserve pool for other expenses, like home renovations or even further education.

An 80-10-10 loan is an ideal option for people who are trying to buy a home but have not yet sold their existing home. 

In such situations, they would use the HELOC to take care of a portion of the down payment on the new home. And when the old home sells they would pay off the HELOC.

The conventional mortgage interest rates are lower than that of the HELOC, which will somewhat nullify the savings gained by having an 80% mortgage. 

But if the borrower pays off the HELOC within a few years, this might not be a problem.

The homeowner’s equity will increase along with their home’s value when home prices are rising. 

But in case of a housing market downturn, they could be left dangerously at loss with a home that’s worth less than what they owe.



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