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 loan’s 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 cheaper.
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, it’s 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 home’s value.
If you plan to cash out part of your home’s equity while refinancing, you may also want to finance a second mortgage separately. Cash out refi loans automatically boost your loan’s 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.