Can You Refinance Your 2nd Mortgage With a New Mortgage?
Refinancing replaces an existing mortgage loan with a new loan, ideally one with a lower interest rate that will drop your monthly payments. If you are looking to lower your monthly mortgage payments with a more affordable interest rate, or you wish to simplify by combining a first and second loan, you can refinance your second mortgage with a new mortgage in different ways.
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Options
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Whether you have a separate first and second mortgage or a first mortgage and a home equity line of credit (HELOC), you can refinance the second mortgage only, or you can opt to combine the first and second into a new lower-interest fixed-rate mortgage. If you already have a low fixed interest rate on your first mortgage, refinancing only the second mortgage may be the best option.
Considerations
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It is important to assess your current financial situation, and determine the goals you hope to accomplish by refinancing. If you already have low fixed interest rates on both your first and second mortgages or HELOC, a slightly lower interest rate may not be worth the refinancing costs. Some lenders waive closing costs on a refinance, especially if your first, second or both loans are with them. However, if they do not, fees can often amount to 3 percent to 6 percent of the loan amount.
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Refinance Second Only
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The easiest way to refinance a second mortgage with a new mortgage might be in contacting your lender about refinancing an adjustable or fixed-rate loan with a lower fixed-rate loan. As long as you have been timely with your mortgage payments and your credit rating is high enough, typically 700 or above, your lender may be able to offer you a streamlined refinance process, which eliminates much of the usual paperwork and costs.
First and Second Combined
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To create one simple monthly payment and potentially save thousands of dollars, you could opt to combine your first and second mortgage or HELOC into one low fixed-rate loan. If, for example, you have a 6 percent interest rate on your first mortgage, and a second mortgage with a rate of 6.25 percent, and the current going interest rate is 5 percent, you could save substantially by combining both loans into a single 5 percent fixed-rate loan.
Subordinate the Second Mortgage
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Although many refinances involve paying off a second mortgage or HELOC with a new lower interest loan, borrowers often subordinate a second mortgage. Subordination is done when borrowers refinance their first mortgage while leaving their second mortgage intact under the existing terms, choosing not to pay it off with proceeds from their new loan. Not all lenders will do subordinations, but your chances are probably better if you stick with your current lender.
Benefits
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There are a variety of benefits in choosing to refinance a second mortgage with a new mortgage, including extra cash to pay down other debts, such as credit cards and school loans. You may want to refinance to change an adjustable-rate mortgage into a fixed-rate mortgage. A refinance may also be completed to reduce the term of your mortgage, such as reducing a 30-year loan to a 15 years.
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