Refinancing your first and second mortgages will lower your monthly mortgage payments and qualify you for lower rates overall. It will also save you money on closing costs and application fees. And when you look at rates and terms, you can re-evaluate your loan repayment schedule to better fit your budget needs.
Why a mortgage is better than two
Lending companies prefer financing one total mortgage over two separate loans. So the rate of the second mortgage is at least one point higher than the rate of the first mortgage.
Refinancing two mortgages into one qualifies you for a lower mortgage. Since lenders charge a flat fee for the application, you will save money by only going through the process once. Closing costs can also be lower.
Re-modify the terms
Most likely, your mortgage has different terms. Refinancing is a good time to re-evaluate those requirements and determine what best fits your budget interests.
If lower payments are your concern, choose the long term. While this will increase your total interest costs, it will alleviate immediate budget issues. Then when your financial situation improves, you can make principal payments to offset the interest costs.
When you are concerned about interest costs, it is better to choose a shorter period at a lower rate. You can also pay points to lower your prices even further. But this is only wise if you plan to hold the loan for several years to cover costs.
Sometimes separation is better
In some cases, it is best to keep two separate mortgages to save money. In some cases, refinancing your mortgage individually will give you a better rate overall. This is especially true if your total mortgage loan equals more than 80% of your home’s value.
If you plan to spend a portion of your homeownership when you refinance, you may also want to separately finance a second mortgage. Cash withdrawal loans automatically increase your loan rate.
To find the best option for you, request your mortgage refinancing offers jointly and separately. Also, check with a few different lenders to make sure you get the most competitive offer.