Homeowners with a home equity line of credit, a home equity loan, or a second mortgage may want to refinance one or both of those mortgage loans to reduce their monthly payments, switch to a fixed-rate loan, or shorten the length of the loan. Today’s tightened credit standards mean that lenders may be less inclined to approve a home refinance for someone with two loans or with a loan-to-value ratio above 90%.
Refinancing a Second Mortgage Depends on Your Goals
Whether or not you can refinance a home with two existing mortgages depends on a number of individual factors. First, decide what your goals are when applying for mortgage refinancing, since this influences whether you try refinancing one or both of your loans. Think about whether your priority is reducing your monthly payments, paying off your mortgage faster, or even accessing the equity in your home for cash for college tuition, home improvements, or debt reduction.
If both of your mortgage loans are held by the same lender, the process of refinancing your home may be simpler. The important thing to realize is that the second loan is riskier for the lender than the first loan. When a homeowner defaults on their mortgage loans, the lender forecloses on the property and sell it. Unfortunately, in today’s real estate market, when home values have declined, the sales price may not be enough to pay off both loans. The first loan is paid before the second loan, so the lender holding the second mortgage may not be paid at all. Some lenders now will not approve second loans at all.
What If I Can’t Refinance My Second Mortgage?
Refinancing your second loan could be difficult in today’s market conditions, so you may want to consider either wrapping the two loans together into one mortgage or refinancing the first loan at a lower rate and paying off your second loan with the extra money you have each month. Check with your current lender and with other lenders to compare offers. Be sure to look at the fees they charge for refinancing as well as interest rates.
The more refinancing information you gather, the easier it is to decide if wrapping your loans together or refinancing just one loan makes sense for you.