Refinancing your first and second mortgages requires more attention. Depending on your equity, you may find that combining mortgages results in a higher interest rate. You may also find that you have to assume a PMI with a refinanced mortgage.
Will refinancing benefit you?
Refinancing two mortgages allows you to combine your loans into one payment, and often lowers your monthly bill. You can also find low prices in the right conditions.
Those with large amounts of equity benefit the most from loan consolidation because they qualify for the lowest rates. It’s important to look at interest savings, not just misleading monthly numbers.
However, if you own less than 25% of the shares, you may qualify for a higher rate. With less than 20% equity, you will also have to pay for private mortgage insurance. Even with these factors, you may find that you will save money by refinancing.
Did you do your research?
To see if refinancing makes sense for you, research mortgage lenders. You can quickly get online and request quotes and terms. Take a look at the different offers and find out how much they are. An online mortgage calculator can help you find out your monthly payments and interest costs.
An easy way to compare costs is to first add the interest payments on the mortgages. Use this number to compare the interest payments for each potential mortgage.
You also need to consider refinancing costs. Just like with the original mortgage, you have to pay fees and points. You want to make sure that you can cover these costs with your interest savings.
Why would you want to refinance both mortgages?
While refinancing both mortgages is convenient, you may decide to refinance only one or both of them separately. With your primary mortgage, you can expect to get low rates.
A second mortgage usually qualifies for a higher rate, but you can lock it in. You can also choose to convert from a line of credit to a real mortgage. Again, you will want to check out the financial packages before signing up with a lender.