Refinancing both your first and second mortgage will lower your monthly
mortgage payment and qualify you for overall lower rates. It will also
save you money on closing costs and application fees. And while you are
looking at rates and terms, you can reevaluate your loans payment
schedule to better fit your budget needs.
Why One Mortgage Is Better Than Two
Lending companies prefer financing one total mortgage rather than two
separate loans. So second mortgage rates are at least a point higher
than first mortgage rates.
Refinancing your two mortgages into one will qualify your for a lower
rate mortgage. Since lenders charge flat application fees, you will save
money by going through the process only once. Closing costs can also be
In all likelihood, your mortgages have different terms. Refinancing is
a good time to reevaluate those terms and decide what would best meet
your budget concerns.
If lower payments are your concern, then choose a longer term. While
this will increase your total interest costs, it will ease your immediate
budget concerns. Then when your financial situation improves, you can
make principal payments to offset the interest costs.
When concerned about interest costs, its best to opt for a shorter
term with its lower rate. You can also pay points to further lower your
rates. But this is only wise if you plan to keep the loan for several
years in order to recoup the costs.
Separate Is Sometimes Better
In some cases, it is better to keep two separate mortgages to save
money. In some instances, refinancing your mortgages individually will get
you better rates overall. This is especially true if your total
mortgage principal equals more than 80% of your homes value.
If you plan to cash out part of your homes equity while refinancing,
you may also want to finance a second mortgage separately. Cash out refi
loans automatically boost your loans rate.
In order to find your best option, request quotes for refinancing your
mortgages together and separately. Also look at several different
lenders to be sure you are getting the most competitive offer.
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