Second Mortgage

Combining 1st & 2nd Mortgages Together

It seems to be a common dilemma for homeowners in many states:

What the best solution for refinancing my first & second mortgages?

Suppose if you have an 6% 1st mortgage with a balance of $255,000, and a second mortgage at 14% with a balance of $52,500. You do a 125% second mortgage to pay off some credit cards. If you add the loans together, you may exceed your homes equity.

So should you refinance the second by itself and try and get a lower rate, or should you refinance the 1st and 2nd mortgage together for one mortgage payment?

Combining first and second mortgages into one loan can be challenging, but sometimes it makes sense financially as well as being practical. Here in this case, the best option is to leave your first mortgage alone, and simply refinance the 125% home equity loan with a 95- 100% second mortgage to lower your monthly payments.

Depending on the home equity program, 2nd mortgages may cost you a few thousand dollars in closing costs. Most closing costs are tax deductible and getting the lowest possible rate pays off in the long run.

For example, With a 15 year term, you would recover the cost of the second mortgage within a few years, so if you can get 1% or more better paying some closing costs, it would be better than a home equity loan with no points. The lending reality is that most no point no fee 2nd mortgages require credit scores over 700, and the combined loan to value will most likely need to be under 90%.

If you are able to get the second mortgage with no penalty for early payoff, then get that feature with your loan, because if your home’s value continues to increase, then in a year or two, you may find yourself ready to refinance because you are back at the golden 80% combined loan to value. If 1st mortgage rates happen to drop again, then you may find yourself in a great position to finally combine both loans together. If the 1st mortgage rates dropped to the 6% zone, and you still plan to live in your home for many years to come then make the move to refinance. It all comes down to what the rate are doing, when the time comes.