The 80/20 Rule of Refinancing

The term "80/20 rule" shows up in multiple parts of the mortgage world. Sharla Ellis, Utah Licensed Mortgage Broker and Fairway Independent Mortgage Branch Manager (NMLS# 209040), breaks down how the rule applies to equity thresholds, piggyback loans, and eliminating PMI for Salt Lake County homeowners.

Sharla Ellis · 6 min read

Meaning #1: 80% Loan-to-Value (LTV) for Optimal Refinancing

Most lenders offer their best rates once your mortgage balance is at or below 80% of your home's value (20% equity). Hitting this threshold typically removes private mortgage insurance (PMI) and unlocks the lowest pricing tiers. Sharla helps Salt Lake City homeowners calculate their current LTV and determine whether a refinance or appraisal makes sense to document that equity.

Meaning #2: 80/20 Piggyback Loans

An 80/20 piggyback uses two loans—an 80% first mortgage and a 20% second mortgage—to avoid PMI or keep a first mortgage below jumbo limits. While less common today, piggybacks can be valuable if you want to preserve a low-rate first mortgage, avoid jumbo pricing, or finance improvements without a full cash-out refinance. Sharla compares the blended payments to conventional alternatives so you can see the trade-offs.

Meaning #3: PMI Removal at 80% LTV

Once your principal balance reaches 80% of the home's value, you can request PMI removal; at 78% it is removed automatically. Refinancing can accelerate PMI removal if market values or renovation projects have boosted your equity. Sharla reviews recent sales in Sandy, Draper, or Cottonwood Heights to see whether an appraisal might eliminate PMI sooner.

How to Calculate 80% LTV

Estimate your home's current value (recent sales, CMA, or appraisal).
Multiply that value by 0.80 to find the maximum loan amount for 80% LTV.
Compare the result to your current loan balance to see how much equity you have—and whether cash-out fits your goals.

When the 80/20 Rule Matters Most

Removing PMI: Refinancing once you reach 80% LTV can wipe out monthly insurance costs.
Cash-out planning: Staying at or below 80% LTV keeps rates lower and underwriting simpler.
Balancing rate risk: Piggybacks can preserve a low-rate first mortgage while tapping equity via a second loan.

FAQs About the 80/20 Rule

Do I need 20% equity to refinance?

No, but 20% often unlocks the best pricing and removes PMI. Sharla can explore FHA, VA, or lender-paid options if you have less.

Are 80/20 piggyback loans still available?

Yes, though they are more niche. They can be useful for avoiding jumbo rates or keeping a low-rate first mortgage intact.

Can refinancing help me remove PMI sooner?

Absolutely. If your home value has climbed, a new appraisal may show 20% equity even if your lender hasn't removed PMI yet.

What if my equity is under 20%?

Programs like FHA streamline, VA IRRRL, or conventional loans with PMI can still work. Sharla reviews each option based on your credit and goals.

Client Perspective

"Sharla and Katie were great to work with. They kept us informed and answered all of our questions. Our transaction was done from out of state and it went really smoothly. We'd definitely recommend Sharla and her team to people!"

— Katie P., Salt Lake City homeowner