Combining a First and Second Mortgage in a Refinance

Combining two mortgages and refinancing may make sense for some homeowners, specifically:

–          Individuals wanting lower monthly payments with a better interest rate;

–          Those who wish to match their financial circumstances with their loan term;

–          Homeowners who want to eliminate the expense of private mortgage insurance.

But before the decision is made to combine mortgages, it’s important to understand that this method doesn’t suit all homeowners. Refinancing, no matter which way it’s done, requires some knowledge about your individual situation and your needs.

Other factors such as the amount your home is worth, how much is left owing, and how long you plan to occupy it will also come into play when deciding whether refinancing your second mortgage is a good idea.

Advantages of Combining and Refinancing a First and Second Mortgage

The primary advantage of combining both loans is that you only have to deal with a single payment. If the money savings of doing this are significant enough to justify this type of refinance, you may still need to wait until your second mortgage is one year old before you do so. However, this will depend on your lender; some don’t require a waiting period.

The benefit of waiting a year is the possible building of home equity. The higher your home’s equity when you combine your two mortgages, the lesser the chance of your new loan and costs exceeding your home’s value.

Homeowners whose mortgages were closed before the housing slump can get great relief from combining and refinancing their loans due to the low interest rates which are now available.

And if both mortgages had adjustable rates, you can refinance both loans and a fixed rate, which can benefit you greatly, as a fixed rate refinance means your rates will stay low.

Refinance Home Mortgage

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Disadvantages of the Process

Because refinancing involves the same methods as when you first applied for your mortgage, you will have to pay fees and closing costs. So it makes sense to ensure you can justify those costs, such as choosing to live in your home for an extended period of time.

A drooping credit score may cause you to not be approved by lenders if a low rate is what you’re after. And so combining and refinancing both loans may actually result in you paying a higher interest rate.

If you’re combining and refinancing your mortgages for the purpose of eliminating the PMI, be aware that this will only happen if your home has more than 20% equity, as PMI is required for home loans that come in under this amount.

How to Get Started

Using a mortgage calculator that you find online can help you determine whether or not combining and refinancing your mortgages is a feasible option for you.

If it’s determined that this is a good decision, consulting your credit report for any negative ratings should be your next step. Attempt to correct any errors noted in your report so that you can present less of a risk to your lender.

Once your credit report has been cleared, it’s time to compare lenders, which can be done most efficiently online. Check what each offers in terms of refinancing programs, and then look more closely at factors like lending fees, rates and loan terms to find the lender that you can be confident about.

Most lenders can be negotiated with for the purpose of waiving title or appraisal fees. It doesn’t hurt to ask, and it could save you a little bit more money.

Don’t Forget to Keep Your Eyes Peeled

Anything having to do with your financial life should be reviewed very carefully. You should not hesitate to ask your lender any questions about making payments or about any terms you may encounter as you are looking over your paperwork.

Should everything look as though it’s in place, then it’s time to sign and enjoy the new lower rate you will get from combining and refinancing your first and second mortgages.

Guest author Tony Caro writes on a variety of topics, and is particularly well-versed on the topic of how to refinance home mortgage.  He is a frequent contributor on the Refinance Home Mortgage Guide.  You can also find .

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