The hassle of making two monthly mortgage payments has prompted
many homeowners to consider refinancing their 1st and 2nd
mortgages into one loan. While combining both loans into one
mortgage is convenient, and may save you money, homeowners
should carefully weigh the risks and advantages before choosing
to refinance their mortgages.
Benefits Associated with Combining 1st and 2nd Mortgages
Aside from consolidating your mortgages and making one monthly
payment, a mortgage consolidation may lower your monthly
payments to mortgage lenders. If you acquired your 1st or 2nd
mortgage before home loan rates began to decline, you are likely
paying an interest rate that is at least two points above
current market rates. If so, a refinancing will greatly benefit
you. By refinancing both mortgages with a low interest rate, you
may save hundreds on your monthly mortgage payment.
Furthermore, if you accepted a 1st and 2nd mortgage with an
adjustable mortgage rate, refinancing both loans at a fixed rate
may benefit you in the long run. Even if your current rates are
low, these rates are not guaranteed to remain low. As market
trends fluctuated, your adjustable rate mortgages are free to
rise. Higher mortgage rates will cause your mortgage payment to
climb considerably. Refinancing both mortgages with a fixed rate
will ensure that your mortgage remains predictable.
Disadvantages to Refinancing 1st and 2nd Mortgage
Before choosing to refinance your mortgages, it is imperative to
consider the drawbacks of combining both mortgages. To begin,
refinancing a mortgage involves the same procedures as applying
for the initial mortgage. Thus, you are required to pay closing
costs and fees. In this case, refinancing is best for those who
plan to live in their homes for a long time.
If your credit score has dropped considerably within recent
years, lenders may not approve you for a low rate refinancing.
By refinancing and consolidating both mortgages, be prepared to
pay a higher interest rate. Before accepting an offer, carefully
compare the savings.
Moreover, refinancing your two mortgages may result in you
paying private mortgage insurance (PMI). PMI is required for
home loans with less than 20% equity. To avoid paying private
mortgage insurance, homeowners may consider refinancing both
mortgages separately, as opposed to consolidating both mortgage
loans.
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