About two and a half years ago, my wife and I purchased our first home using 80/20 loans (to avoid PMI). Of course these were ARM loans, and neither loan has ever had good interest rates. I think the 80% loan is around 10.4%, while the 20% is about 12%. My interest rates were so bad at the time of financing because I had been discharged from a bankruptcy less than 24 months prior. Now it has been almost four years since my bankruptcy, and I would like to get those interest rates down by refinancing. I know that I have not built up enough equity to put 20% down. I owe about

I don't mind sticking with an 80/20 type arrangement, if I could just get the rates down to a decent level. Other than doing that, I guess my other option is to consolidate the two loans into one. I know I would then have to start paying PMI, but I would think that it would be recouped in the interest savings. I'm just not sure what is involved in getting these consolidated into one loan, and whether or not this is the path I should take. I guess that is why I'm here. Any help would be greatly appreciated.

You may like to begin by contacting your lein holder and ask if you qualify for a rollover loan (streamline). If you have been a good customer, they don't want to lose you. Ask if there is any program to get your rate lowered and see what they say. Same with the second. If you can streamline you will save a ton of money in closing costs.

The first thing you have to know is whether or not your FICO scores have improved. With the BK getting older, your scores should be better unless you have a lot of consumer debt that you have added and not taken care of properly. You can get a free credit report, and in some states, free scores as well. Chances are your home has gone up in value around 10%, so even with having very little (or nothing) of your payment going to the loan balance, you should have enough equity to work something out. You can also have a loan officer start a file on you and for about 10-12 bucks they will pull a current report. (S)he can run numbers to see if an 80/20, or a 95% LTV with PMI works out better. If you have improved your credit, the new rates should save you some money in either fixed, or variable loans.

You've got a unique situation, but if you have made your payments on time on the mortgage you shouldn't have any problems in restructuring your loan. There are ways to still get good rates with no PMI even at 90-95%. A experienced mortgage broker should be able to give you the options you need. Stay away from the "one program" lenders because they will put you on a PMI loan and say that's the best (their only) program.

Make sure you trust whomever you work with too. It will give you a lot of peace of mind.

Refinancing out of ARM loans is the right thing to do especially if you plan to stay in the home. The most advantageous structure (returning to 80/20 or 1 loan) would have to be determined by a competent mortgage provider after seeing all the data.

One thing to be aware of in making that decision: PMI is now, in fact, tax deductible for the first time in our history (Congress passed the bill and President Bush signed it into law end of December, 2006). Any refinance that only refinances the original amount (plus costs) is eligible. So should the best structure turn out to be a one loan with PMI, you want to get it done inside 2007. You'll be able to deduct the PMI premiums for as long as you hold the loan.

Tax deductibility for PMI is also for purchases completed in 2007 as well. I wrote a post on my blog about all the other qualifying conditions...click here to read.

Your biggest problem in refinancing may come in being "upside down" or "underwater" on your home's value. Property values are dropping all over the country and should your new loan balance with costs rolled in be more than the home is worth...well, no refinance. Another good reason to get it done, if it's doable, as soon as possible.

Hope this helps...
Rob K. Blake
The Mortgage Insider