Refinancing Multiple Mortgages Into One
Can refinancing your mortgage save you money? It’s fairly common for homeowners to have not one but two or more mortgages filed against the property. For some, they actually took out two loans at the time of purchase, a first and a second mortgage. When we structure such a loan for buyers, it’s to avoid paying private mortgage insurance, or PMI, each month. Instead of a 20 percent down payment, the amount needed for conventional loans to avoid PMI, borrowers can put down 5.0% or 10.0%. The first mortgage stays at the 80 percent LTV level while the second, subordinate loan makes up the difference between the actual down payment and 20 percent down.
Benefits to Refinancing
Homeowners may also add on another mortgage later on after buying the property. For example, a couple buys a home and uses an 80-10-10 loan to finance the transaction. A couple of years pass and they decide they want to remodel the kitchen so they take out a home improvement loan. The home improvement loan in this instance would then be in a third position. The position of liens is important because it relates to which loan gets paid off first. Should the property sell, the first mortgage is paid off initially, followed by the second and finally the third. Liens that are in a lower priority have to be concerned there are enough funds to pay off all the liens when the home sells. To compensate for the additional risk assigned lower-tier liens, interest rates on subordinate loans are a bit higher. Which is why homeowners can elect to refinance multiple loans into one first lien mortgage for lower overall monthly payments. It’s much easier to manage a single loan than several.
In order for this transaction to be successful, there needs to be sufficient equity in the property that would keep the new first mortgage at or below 80 percent of the current market value of the property. Homeowners can have a pretty good idea if they can reach that value. If this is you, all you need to do is call me and we can discuss your options. I can even give you an idea about what your home might appraise for although the only true way to know is by ordering a new property appraisal.
Find out if Refinancing is a Smart Move
For those who have over the years collected two or even three mortgage loans on a property with today’s current interest rates it might very well make sense to refinance all those loans into one. It may even be a benefit to look at shorter loan terms than you currently have. Doing so will reduce the overall monthly interest you’ll pay. Even though shorter loan terms do have slightly higher monthly payments, it’s very likely that even though your term will be shorter, your new monthly mortgage payment can still save you money each month. Let’s talk about this together to see if it makes sense in your present situation.
