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Refinancing a First and Second Mortgage – What You Should Know

With interest rates so low, many homeowners are choosing to refinance. The option is pretty straight forward when you have just one mortgage, but what happens when you’re interested in refinancing a first and second mortgage? The answer is, it depends.

Timing of the Second Mortgage

Sometimes you can refinance into a new loan that pays off both your first and second mortgage, leaving with you one simple new loan to worry about. Other times, you’ll only be able to refinance the first mortgage, leaving the second one intact. The determining factor is when you obtained that second mortgage. If your second mortgage was obtained at the same time as the first and was used to buy your home, then you can normally refinance both loans into one.

Why Refinancing Into a Single Loan Is Ideal

Why would you want to refinance both loans? Second mortgages generally have a higher interest rate and a shorter timeframe for repayment. Rolling that amount into a 30-year loan would therefore reduce the monthly payment. However, it’s important to note that although the interest rate may be lower, you’ll be paying over a longer period of time. Therefore, the total interest paid will be more for the amount covered by the second mortgage.

Here’s an example from an actual customer.

1st Mortgage – $2066/mo (30 yr fixed @4.25%)
2nd Mortgage – $395/mo (15 yr fixed @4.99%)
Total Monthly Payment – $2,461

If this customer refinanced into a single loan at the current rate of 3.375%, their monthly payment would be $1,972/mo. Their monthly payment would be reduced by $489.

If this same customer only refinanced the first mortgage, the payment on their new first mortgage would be $1773 and they would still have their second mortgage at $395. Combined, that’s $2,168, a savings of $293 per month.

More on Refinancing a First and Second Mortgage

It’s important to understand these rules for refinancing a first and second mortgage before you apply for a refinance. Additionally, remember that interest rates are determined by your credit worthiness. So, maintaining a good credit score will be a huge benefit. Consult with a loan officer to learn about current interest rates and to request a pre-approval based on your particular finances. Mortgage payments and interest rates mentioned above are for illustration purposes only.

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Attorney John J. Martino offers a broad range of legal services in Eastern MA and Southern NH. As a highly dedicated and experienced professional, he handles cases under the following areas of practice:

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