More on Refinancing Two Mortgages

Making a decision on refinancing when you have both a first and a 2nd mortgage can be very difficult. As outlined in the first article on this topic, you must decide whether to refinance one or both mortgages, and if you choose both, whether to keep the two loans separate or consolidate them.

In making this decision, you must consider a number of factors, including the rates and points available on the new loans. You must also consider how long you plan to stay in your home after the refinance.

In addition to these considerations, you will want to think about several other factors. The first of these is the current value of your home. If your home has appreciated greatly in the years since you purchased it, you may be able to refinance your first mortgage and avoid mortgage insurance. Depending on the level of appreciation, you may even be able to consolidate your two loans into one and still avoid mortgage insurance.

You’ll also want to look at the remaining term on your existing loans. If there isn’t much time remaining on one or both, refinancing becomes less attractive. The negative effect of high rates is minimized by the fact that the loan will be paid off soon, making refinance costs unnecessary.

In a similar vein, make sure to consider the term of the new loan or loans as well. A shorter term may increase monthly payment amounts, but it will result in the loan being paid off faster. Refinancing to a loan with a shorter term is more attractive than taking on another long-term loan.

Finally, you’ll want to give some thought to your tax situation, specifically which tax bracket you are in. If you are in a higher bracket, refinancing your high-interest loans will not have as much of a positive effect, since these high interest payments are tax-deductible.

However, if there is only a short amount of time left on your original mortgages, a refinance could be profitably for those in a high bracket. This makes little common sense, and is indicative of the complexity of refinancing two mortgages.