You initially chose an 80/20 or 70/30 loan for one of two reasons: you don’t have funds available for a down payment, or you want to avoid having to pay private mortgage insurance (PMI). You have two loans: one for the majority percentage of the mortgage; the other for a minority percentage value that is usually used as a line of credit. Refinancing is not always possible with these types of loans, and it is not always prudent.
Refinancing a loan may be a good idea if the interest rate you qualify for is lower than your current rate. This may be especially attractive to you if you have a variable interest rate.
How to know if you qualify for a refinance
If you owe more on your current 80/20 or 70/30 loan than the current value of your property, you will not be allowed to sell your property or refinance until you pay off your loan. Keep in mind that if property values in your neighborhood have been increasing, the amount you owe may actually be less than the value of your property. You may want to do an appraisal to find out.
How an 80/20 or 70/30 mortgage refinance works
An 80/20 or 70/30 mortgage refinance can provide options for the borrower. For example, you may find it worthwhile to make a balloon payment and pay off the smaller loan amount and purchase a lower interest rate on the remaining amount owed on the larger loan.
It may also be possible for you to refinance both loans and purchase lower interest rates and lower monthly payments if you want to keep two loans. You might even qualify for a new second loan that gives you a new, higher line of credit.
