If you have a home loan, perhaps you have considered refinancing your
loan. Homeowners may refinance their home loan to cash-out and pay
outstanding credit card balances and consumer loans. In addition,
refinancing a home loan is ideal if you have two mortgages. Combining a first and
second mortgage into a new loan is a great way to consolidate debt.
Why Get a Second Home Mortgage?
Many homeowners obtain a second mortgage. The reasons vary. Some may
get a second mortgage to eliminate credit card debt, whereas others may
borrow money to complete home improvements. If you get a second
mortgage, the funds are secured by your homes equity. In addition, a second
mortgage is a separate loan amount. Because these loan amounts are
smaller, the monthly payments are lower than first mortgages. However, the
interest rates on second mortgages tend to be higher.
Nevertheless, the interest rates on second mortgages are considerably
less than credit cards. Plus, the loan terms are fixed, which allows you
to pay the balance within a few years. If you are hoping to eliminate
debt, and simplify your finances, consolidating your first and second
mortgage is the perfect solution.
Mortgage Loan Refinancing
Refinancing your first and second mortgage into a single loan is ideal
if you have a higher interest rate on both loans. For example,
homeowners with less than perfect credit may receive an initial home loan with
a higher percentage. Moreover, their second mortgage may also carry a
higher interest rate. If you are in this situation, try and improve your
credit rating, and then apply for a new mortgage. This way, you
increase your chances of being able to consolidate your first and second
mortgage at a lower fixed rate.
In some instances, homeowners obtain a first and second mortgage with
an adjustable rate. This is beneficial in the beginning because the
rates are low. However, as market trends shift, the interest rate on both
loans may increase, which will increase the monthly payments. This is
dangerous. If a homeowner is unable to pay either mortgage, the lender
may foreclose. Thus, it is wise to refinance both mortgages into a single
loan before interest rates increase.
See my recommended
Home Mortgage Refinance Lenders for the lowest rates
Carrie Reeder is the owner of ABC Loan Guide.