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 for 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 normally used as a line of credit. It is not always possible to refinance these types of loans and it is not always wise.
Refinancing a loan may be a good idea if the interest rate you qualify for is lower than the rate you currently have. This can be especially attractive 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 your property is currently worth, you will not be allowed to sell your property or refinance, until you pay off your loan. Keep in mind that if the value of properties in your neighborhood has increased, the amount you owe may be less than the value of your property. You may want an appraisal done to find out.
How an 80/20 or 70/30 mortgage refinance works
An 80/20 or 70/30 mortgage refinance can offer options for the borrower. For example, it may be worthwhile to make a balloon payment and pay off the smaller loan amount and acquire a lower interest rate on the remaining amount due on the larger loan.
It may also be possible to refinance your loans for lower interest rates and lower monthly payments if you want to keep two loans. You may even qualify for a new second loan that gives you a new higher line of credit.