How to Refinance 1st & 2nd Mortgages
When interest rates are low, homeowners rush to refinance their mortgage loans. This isn't a surprise; dropping the interest rate from 6 percent to 5 percent on a $200,000, 30-year fixed-rate mortgage can save homeowners more than $125 each month. But refinancing is more complicated when homeowners have both a first and second mortgage. Being able to refinance in this instance requires the consent of the company that originated the second mortgage.
Other People Are Reading
Things You'll Need
- Proof of income, such as your two most recent paychecks
- Two most recent federal income tax returns
- Most current first mortgage statement
- Most current second mortgage statement
- Bank savings and checking account statements
Instructions
-
-
1
Gather the financial paperwork you need to send to your lender. Your lender will want copies of your two most recent federal income tax returns, your bank savings and checking account statements and your two most recent paychecks. You also need to send your lender your most recent mortgage statements for both your first and second loans.
-
2
Call your first mortgage lender at the number provided on your most recent mortgage statement. Tell whoever answers that you are interested in refinancing your mortgage loan and that you have a second mortgage on your home.
-
-
3
Give the holder of your first mortgage loan the OK to hire an appraiser to determine the value of your home. If your home's value has decreased, you might not have enough equity to qualify for a refinance. You'll have to pay for the appraisal even if your home value is too low to support a refinance.
-
4
Give the holder of your first loan your permission to run a credit check on you. Lenders rely on your credit score, a numerical representation of the way you've handled your money in the past, to determine if you are a risky or safe borrower. Borrowers with credit scores of 720 or higher generally qualify for the lowest interest rates.
-
5
Call your second mortgage lender before an appraisal is done on your house to make sure that this lender is willing to take a subordinate position when the refinance is complete. This means that if there is a foreclosure, the first lender will be first in line to get its money back. In most instances, the second lender will agree. But if the second lender doesn't, you won't be able to refinance your mortgage unless you can pay off the second loan before the process begins.
-
6
Agree to a closing date on the refinance if your home appraises at a high enough level, your first lender is able to verify your income, your credit score is high enough and your second lender agrees to a subordinate position.
-
1
Tips & Warnings
A refinance does not come without costs. Make sure the money you save each month because of lower interest rates makes the refinance worthwhile.
