Many homeowners are considering refinancing their 1st and 2nd mortgage to one loan because they don’t want to make two monthly payments. Combining both mortgages into one mortgage can be convenient and save money. However, homeowners need to weigh the benefits and risks before refinancing their mortgages.
Combining 1st and 2nd Mortgages has its benefits
Consolidating your mortgages will result in one monthly payment and a reduction in your monthly mortgage payments. You are most likely paying an interest rate at least two points higher than current market rates if you have a 1st or 2nd mortgage. Refinancing is a great option if you are in this situation. Refinancing both mortgages at a low-interest rate can help you save hundreds of dollars on your monthly mortgage payments.
1st and 2nd mortgages at the same fixed rate could be a good option if you have accepted an adjustable-rate mortgage. These rates can change even if they are currently low. Your adjustable rate mortgages can rise as market trends change. Your mortgage payments will rise significantly if you have higher mortgage rates. Fixed-rate mortgage financing will keep your mortgage payments predictable.
Disadvantages when refinancing a 1st or 2nd mortgage
It is important to weigh the benefits and drawbacks of refinancing both your mortgages before you make a decision to combine them. Refinancing a mortgage is the same process as the original mortgage application. You will be required to pay the closing costs and fees. Refinancing is the best option for people who intend to stay in their homes for a long period of time.
Lenders may refuse to approve you for low-rate refinancing if your credit score has declined significantly in recent years. Refinancing both mortgages and consolidating them will result in a higher interest rate. Compare the savings before you accept an offer.
Refinancing two mortgages could result in you having to pay private mortgage insurance (PMI). PMI is required for home loans that have less than 20% equity. Private mortgage insurance is not required for home loans with less than 20% equity. Instead of consolidating them all, homeowners might consider refinancing each mortgage separately.