Refinancing: A Tale of Two Mortgages

Many people have two mortgages, the 2nd usually at a substantially higher rate than the first. Many people who have two mortgages also find themselves in dramatically changed circumstances a few years after the 2nd mortgage is obtained.

Perhaps their home has appreciated in value substantially, is the market much different than it was when they sought a 2nd mortgage? Should this be the case, refinancing might be a good option to consider.

However, for people with two mortgages, refinancing isn’t always an easy decision. They must first decide whether to refinance only one of the mortgages, usually the 2nd, or refinance both. If the borrower elects to refinance both, he must then decide whether to refinance into two new loans or consolidate into a single loan.

When making these decisions, there are several factors to consider. The first factor to examine is the rate and points available on the new loans. This will depend on the market at the time, the appreciated value of your home, and changes in your credit rating since you last agreed to a new loan.

To do a true comparison, you’ll want to get quotes for a new loan covering the balance of the first mortgage, a new loan covering the balance of the 2nd mortgage, and a new loan covering the combined balances of both.

Another factor to consider in this situation, as well as in all refinancing decisions, is how long you plan to remain in your home. Refinancing, as a general rule, always involves a trade-off between immediate costs and future benefits. The farther into the future you plan to stay in your home; the more refinancing will benefit your situation.

These are just some of the factors that go into the decision on how to work a refinance when you have two mortgages.