Many homeowners think about refinancing their first and second mortgages into one loan because it's hard to keep track of two monthly payments. Even though putting both loans into one mortgage is convenient and could save you money, homeowners should carefully weigh the risks and benefits before deciding to refinance their mortgages.
Advantages of putting your first and second mortgages together
A mortgage consolidation may help you pay less each month to your mortgage lenders, in addition to making it so you only have to make one monthly payment. If you got your first or second mortgage before rates started to go down, you probably have an interest rate that is at least two points higher than what is currently available. If so, you will benefit a lot from refinancing. By refinancing both mortgages with a low interest rate, you could save hundreds on your monthly mortgage payment.
Also, if you took out a first and second mortgage with an adjustable rate, refinancing both loans at a fixed rate could be better for you in the long run. Even if your rates are low now, you can't be sure that they will stay low. As the market changed, your mortgages with variable rates were free to go up. Your mortgage payment will go up a lot if the interest rate on your loan goes up. If you refinance both of your mortgages with a fixed rate, your mortgage payments will stay the same.
Cons of Refinancing a First and Second Mortgage
Before you decide to refinance your mortgages, you need to think about the downsides of combining them. To start, the steps for refinancing a mortgage are the same as those for getting the first mortgage. So, you have to pay the costs and fees for closing. In this case, people who plan to stay in their homes for a long time should consider refinancing.
If your credit score has dropped a lot in the past few years, lenders may not let you refinance at a low rate. Be ready to pay a higher interest rate if you refinance and combine the two mortgages. Before you accept an offer, compare the savings carefully.
Also, if you refinance both of your mortgages, you may have to pay private mortgage insurance (PMI). PMI is needed for home loans where the down payment is less than 20%. Homeowners who don't want to pay private mortgage insurance may want to refinance both mortgages separately instead of consolidating them.
