You may not want to hear this, but your perception of what a reasonable rate is and what your lender thinks is a reasonable rate are completely different. While you are looking at your rate for your 20% loan and comparing it to your first, your lender is pricing your second mortgage to adjust for the increased risk of lending out 100% of the value of your home. If you are looking to replace your current second mortgage, understand that there are no real deals out there for stand-alone second mortgages and there are not very many lenders (especially now) that offer stand-alones. Your best bet would be to look at a HELOC (Home Equity Line of Credit) to pay off your second mortgage which would be priced at the Prime Rate plus or minus up to one percent and would have minimal or no closing costs. If it makes you feel better though, you are still not in a bad loan structure considering the blended rate that you currently have of 6.05% (5.25*.8 + 9.25*.2) which is not currently available for 80% financing let alone 100%. Also you should be looking at a worst case blended rate of around 6.65% based off of what I am assuming is a 6% lifetime cap on your second mortgage adjustments.

This answer to this depends on how much equity you currently have in the house. Have you made any additional payments. The reason is simple. If the house has declined in value you may owe more than the house is worth. This is the risk you take with 100% financing. When trying to refinance you will need to get another appraisal conducted. If there is not enough equity to borrow against, you are going to have a problem getting a refinanced second mortgage.

yes it is considered a 2nd mortgage its a combo loan so you wouldnt have to set up an escrow or pay mortgage insurance, i would say keep that 1st that 5.25 is a great rate, there are some banks out there that will offer a stand alond second at a fixed rate, depending on the amount of equity in your home, WAMU has great rates now as well as Countrywide, you also have the option to refi to 1 loan but if you are over 80% loan to value you will have to get escrow and most likley PMI, but good luck to you i hope i gave you the answeres you needed

Yes it is a second mortgage. Call a mortgage broker to help you find the best deal for a stand-alone second mortgage. If you are in Florida I can help you; you can email me on yahoo.