A second mortgage, also called a home equity loan, often has a much higher interest rate than a first mortgage. This is because the second mortgage isn’t repaid until the first mortgage is repaid if you default. The additional interest is a form of protection for your secondary lender.
If you’ve accrued additional equity, you may be able to refinance the second mortgage to a lower rate or save even more by combining both your first and second mortgage into a new first mortgage. Not only will your payments be simplified, but also your new interest rate will most likely be lower than the average interest rate of your two loans. This could potentially save you thousands of dollars in interest over the life of the loan.
If you don’t have equity or your credit worthiness has worsened, you most likely won’t qualify for a low enough interest rate to make refinancing either loan worthwhile.
Mortgage Refinance Options
You have three options for refinancing a mortgage: consolidate, only refinance the second, or only refinance the first.
Consolidate Both Loans
Consolidating both loans is the easiest way to refinance and save money. If you have more than enough equity to cover both loans, plus refinancing costs, and your credit is favorable, either of your lenders should be willing to work with you. You can also approach a new lender for a consolidated mortgage, which will now be your sole first mortgage. Before you consolidate, use online calculators to compare the costs and determine whether refinancing both will save you money.
Refinancing the Second Mortgage Only
If you’ve accrued additional equity and your credit has improved, but you don’t want to refinance your first mortgage, refinancing a second mortgage alone may be an option for you. If your current lender won’t refinance and you don’t have a pre-payment penalty, you should be able to find a new lender offering lower rates.
Refinancing the First Mortgage Only
Refinancing a first mortgage without refinancing the second can be complicated. When you refinance, you pay off the first mortgage and your second mortgage automatically becomes a first mortgage. In order to refinance your first without refinancing your second, your second mortgage lender must agree in writing to continue to subordinate his claim. Some lenders will agree to this, but others will refuse. If your second mortgage lender refuses, your only options are to consolidate or to refinance both loans into new separate loans. You will probably need to find a new lender for the second mortgage. For more articles on Mortgage Refinance, visit: http://www.bills.com/mortgage-refinancing/