Refinancing your mortgage when you have more than one can be more complicated than it is when you just have one. If you currently have a second mortgage, it is possible to refinance it, but be prepared for a more lengthy approval time than it took to get your first mortgage.
The amount of equity or loan to value ratio will be a major factor as to whether your refinance to consolidate the two mortgages into one will be possible or not. Alot of people when they take out a second mortgage will max out the loan to value ratio, meaning if they are eligible for a second mortgage up to 80 or 85% loan to value to consolidate debt with they will do that. For example, if the individual owns a home worth $200,000 and they have a first mortgage on the property of $100,000 they will take out a second mortgage of $60,000 to 80% loan to value, while this may be necessary, if possible it should be avoided. The reason being is that you need to have an exit strategy for when you want to get out of the second mortgage which is likely a high rate and interest only payments. If you are at 80% loan to value already it will be very difficult to refinance the two loans into one in the near future because now you will likely have to get approved for a mortgage with an institutional lender to consolidate the two mortgages into one that will have to be above 80% loan to value because there will need to be enough “space” in the new first mortgage to payoff the two mortgage loans with the new mortgage plus extra for things like a lender fee, legal fees and possibly a brokerage fee. If the loan to value ratio is too high you could end up stuck in the second mortgage for longer then planned with the only way out being to lower the loan to value ratio by paying down the first mortgage or hoping that your homes value appreciates. The best way to avoid any potential problems refinancing out of your second mortgage is when you enter your second mortgage agreement try to stay under 75% loan to value if possible.
How To Refinance Second Mortgage
Property value will be the main factor. As mentioned the loan-to-value ratio is a key metric in this situation, which can mean that the new mortgage lender will request an appraisal on your property. If values have been appreciating in your area, this generally won’t pose a problem, but if there have been a lot of short sales or foreclosures recently in your community, that can pull your values downward, and then you can end up with no approval for your second mortgage refinance.
So if you want to refinance a second mortgage, but the lender denies your application, what can you do?
Speak to a mortgage broker, he or she should be able to develop creative solutions to financing issues surrounding the home. If you’ve come into a new position at work that is paying you more money, and you want to pay off that second mortgage sooner, that can save you a great deal of money — unless you’re in a closed loan, which would charge you interest differential fees if you pay it off more quickly — then your mortgage broker should be able to help explain your option to you.
Refinance second mortgage options
If your second lender says no to renewing, another option is to go to your first mortgage holder and ask for a consolidation of the two loans. You’ll want to look, of course, at the requirements for lending and the closing costs before signing any new paperwork. Most lenders treat a refinance as a new loan application, and if the bank has elevated its requirements as far as credit score, but your credit score is still below that new minimum, you don’t qualify for refinancing.
2nd Mortgage Loans
As far as closing costs, every loan application and scenario are different, so you’ll want to think about whether applying for the refinance will even save you any money. If you have a relatively low balance on a closed mortgage, the best use of your money is often to just stick it out and make the payments until the mortgage term is up. After that, when those payments aren’t coming out of your budget, you’ll have more financial flexibility.
To get the best perspective on your second mortgage refinance situation, speak to a mortgage professional. A mortgage professional can offer many different ways to improve your financial flexibility and help you get the best financing at the most favorable rates and with the lowest fee structure.
