The struggle of making two monthly mortgage payments has prompted many homeowners to refinance their first and second mortgages into one loan. Although combining both loans into a single mortgage is convenient and can save you money, homeowners should carefully weigh the risks and benefits before deciding to refinance their mortgage.
Advantages of combining first and second mortgages
In addition to consolidating your mortgages and paying monthly, a mortgage offers…
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The trouble making two monthly mortgage payments has prompted many homeowners to refinance their first and second mortgages into one loan. While combining both loans into one mortgage is convenient and can save you money, homeowners should carefully weigh the risks and benefits before deciding to refinance their mortgage.
Benefits Associated with Combining a First and Second Mortgage
In addition to consolidating your mortgages and making one monthly payment, mortgage consolidation can lower your monthly payments to lenders. If you bought your first or second mortgage before home loan rates started falling, you are probably paying an interest rate that is at least two points higher than current market rates. If so, you can benefit from refinancing.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 mortgage loans with less than 20% equity. To avoid paying private mortgage insurance, homeowners should consider refinancing both mortgages separately rather than consolidating both mortgage loans.