How to Modify an 80/20 Mortgage

If you bought your home with no money down and are now having trouble making those payments, you may be able to get some help from the government. These "80/20" loans were popular with young professionals who had good jobs but hadn't saved up down payments. These are really two loans, a first mortgage for 80 percent of the house price and a 20 percent second mortgage that was used as a down payment.

Have Payments Current

If you are current on both parts of your 80/20 mortgage, you can apply for relief under the federal government's Making Home Affordable program. This is a plan to reduce your basic monthly payments to no more than 31 percent of your monthly income. This has to be worked out with your lender and there are several options.

Lender Can Forgive

Your lender can forgive part of your loan to cut your payments. This usually is done as an alternative to foreclosure, when the lender decides the value of the property has declined and taking over the house would not produce enough to satisfy the loan. Your lender may consider this if your payments are current and you can continue to make reduced payments to satisfy the mortgage,

Change the Terms

You also can reduce your payments by convincing your lender to reduce the interest rate or extend the term of the loan. If your 80/20 mortgage rates are higher than current rates, your lender may accept a reduction. Extending the term from 20 to 30 years also will cut your monthly payments.

Get 2MP Help

Once you are approved for a Home Affordable Modification Program on your first or 80 percent mortgage, you can apply for 2MP. This is a second lien modification program designed to work with HAMP to cut your total monthly payments on both notes. If the holder of the second or 20 percent mortgage participates in 2MP, it has to provide essentially the same relief as the first mortgage got under HAMP.

Consider Refinancing

You also can consider refinancing to combine both mortgages into a new one. This is a good option if you have have built up equity and reduced the amount of the second or 20 percent mortgage. If your 80/20 loan was $80,000 and $20,000 and you've paid those down to $70,000 and $10,000, your lender might roll both into a new $80,000 mortgage.

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