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Combining your 1st and 2nd mortgages
One way to simplify your monthly bills is to combine your first and second mortgages together into one loan.
Combining first and second mortgages into one loan can makes sense financially but not in all cases. Speak to an experienced loan officer to find out if it is in your best interests to combine the two mortgages.
If you have one loan that is 80% LTV (Loan to Value)or higher, then the Lender may require that you pay mortgage insurance. This is why, in such instances, that your mortgage broker may recommend that you finance both a first and second mortgage. With the entire loan amount split into two seperate loans, mortgage insurance can often be avoided, however, the second mortgage rate is almost always significantly higher than the first mortgage rate. The rate of the second mortgage in such cases has a less drastic effect than rate of the much larger first mortgage, because the loan amount for that second mortgage is far less than the first mortgage.
Combining your two mortgage loans into one sometimes will not provide you with the best financing options available. Many times when you combine a first and a second mortgage loan together it will be considered a cash out refinance instead of a rate and term refinance and there is generally a rate bump associated with this unless your Loan to Value, LTV is below 70%. Consult a mortgage professional to see if it makes sense for you to combine your 2 loans into one or if it might make better sense to simply refinance your 1st and 2nd mortgage separately. An experienced mortgage broker can structure the loan so that it benefits as much as possible.
Often times a borrower will combine not only their 1st and 2nd mortgage, but other bills as well in a total debt consolidation loan. This can usually save the borrower a lot of money each month over their previous monthly bills.
It would also be important if you are paying off other bills to check the amount of money you will be saving over the long run. Do a breakeven analysis to accomplish this.
First mortgages will always have a lower interest rate than second mortgages. Combining your first and second mortgage into a new first mortgage will help you lower your monthly payment. Your rate can sometimes be lower as well if you have gained equity in your house.
» DISCLAIMER: The information contained in this article on 'Combining your 1st and 2nd mortgages' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.
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