How to Eliminate a Second Mortgage
Many homeowners own two mortgage loans, a first mortgage that covers the majority of the cost of their home and a smaller second loan. Sometimes these second mortgage loans adjust to higher interest rates after a set period of time, often five or seven years. Other times, their owners are required to make a large balloon payment, often in the ten-thousands-of-dollars range, when they are due to expire. Homeowners can eliminate a second mortgage by refinancing both their first and second loans into one single mortgage. To do this, they must obtain the permission of the servicer of the second mortgage loan.
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Things You'll Need
- Copies of your most recent first and second mortgage loan statements
- Copies of your two most recent federal income tax returns
- Copies of your two most recent paychecks
- Copies of your savings and checking account statements
- Copies of your credit card bills
- Copies of your student, car and other loan statements
Instructions
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1
Prepare the financial paperwork you'll send to your mortgage lender or bank to get the refinancing process started. This includes copies of your two most recent paychecks, two most recent federal income tax returns and savings and checking account statements. Also make copies of your credit card statements and other loan statements.
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2
Call a mortgage lender--you are not required to refinance with the servicer of either your first or second loan--and explain that you'd like to refinance your first and second mortgage loans into one single mortgage.
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3
Call the servicer of your second mortgage loan and request that it agree to take a subordinate position to the servicer of your first mortgage loan. If the servicer of your second mortgage loan agrees, it will send you a subordination agreement. If the servicer does not agree, you will not be able to qualify for a refinance.
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4
Send your prospective mortgage lender or bank the paperwork that you copied in Step 1. Also send a copy of your subordination agreement. This will start the refinance process in earnest.
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5
Give your lender permission to check your credit score. This three-digit score tells your lender or bank whether you've managed your money wisely in the past. If your score is below 620, you might not qualify for a refinance. If it is 740 or higher, you'll not only qualify for a refinance, you'll also be eligible for the lowest mortgage interest rates.
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6
Give your bank or lender permission to send a real estate appraiser to determine the current market value of your residence. If your home has lost a significant amount of value since you purchased it, you may not have enough equity to qualify for a refinance. Most lenders require that you have at least 20 percent equity in your home before they will approve you for a refinance.
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7
Sign the closing documents that make your refinance into a single loan official if your lender approves your request. Your lender will send these papers to you. Upon closing, your first and second mortgages will be paid off and a new mortgage set in place.
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Tips & Warnings
A refinance can be expensive, often costing $4,000 or more. Make sure that the refinance to a lower interest rate will save you enough money each month to make the move worthwhile.
