Refinance to a 30 year, its a no-brainer for me.
First, if your mortgage payment consists of principal and interest, only the interest is an expense. The rest is just your money being converted from cash to equity in your condo. In your case, cash that can be used to buy anything is being locked into an underwater condo you cannot access.
Obviously, the 20 year has a lower rate and less interest expense. But only .125%, which on $112k loan is only $140 per year. I'd happily pay the extra .125% to be able to keep more cash. Also, as you said the lower payment would mean the monthly rent would likely cover the full amount.