Can You Roll a Second Mortgage Into a First Mortgage?
In real estate, it is fairly common for a homeowner to have a second mortgage, which is a loan that, like the first mortgage, is secured by the home. A homeowner who has more than one mortgage on his home may find himself wanting to get rid of the second mortgage to have just one monthly payment, along with maybe saving some money on interest. To do this, he can roll the second mortgage into a first mortgage.
Other People Are Reading
-
Refinance
-
The only way to roll a second mortgage into a first mortgage is to refinance them into one mortgage. When doing this, you get one large mortgage that pays off both the first and the second mortgage you held previously. To refinance your mortgages, you will need to meet with a lender and apply for a mortgage, just like when you first got your mortgage.
Benefits
-
Second mortgages typically have higher interest rates than first mortgages. This is because the lender takes a larger risk in lending money that may not be secured by the home if the home's value drops. When you roll the second mortgage into a new first mortgage, you should qualify for a lower interest rate than you held on the second mortgage, saving you money in the long term.
-
Costs
-
Refinancing a mortgage can be very costly, so it may not be a good idea if you are planning to move within the next five years. Costs include an application fee, loan origination fee, appraisal, title search and insurance, closing fee, and potentially a prepayment penalty on paying off your previous first and second mortgages early.
Time Frame
-
When you refinance your mortgage, look into getting a mortgage with a term shorter than 30 years if you have had your current mortgage at least five years. This is because taking out a full 30-year mortgage will push back the date when you will fully own your home. A shorter mortgage term, such as 25, 20 or even 15 years, will be more advantageous if you can afford the monthly payments.
Considerations
-
If the balances on your first and second mortgages total more than 80 percent of the current market value of your home, you will need to purchase mortgage insurance if you roll them together into one mortgage. Keeping the second mortgage separate, even at a higher interest rate, may actually be less expensive in that case.
-
