Countless Americans are struggling to make their current mortgage payments, even after taking out a second mortgage. More and more of them are looking into refinancing their existing mortgage and second mortgage, but they’re not sure if it’s actually possible for them. Can you refinance second mortgage loans? And can you refinance your first mortgage with a second mortgage?
The short answer to that question is yes. In this article, we will walk you through the steps to refinancing with a second mortgage and explain the pros and cons of refinancing. You’ll also learn about an alternative to mortgage refinancing.
Refinancing Your Mortgages
If you’re wondering, “Can I refinance a second mortgage?”, know that there are a few different ways to go about it. Refinancing can work for your first mortgage and second mortgage together into one, or you can refinance only the second home loan. Be sure to also understand whether or not a loan modification vs refinance is best for you.
Refinancing a First & Second Mortgage Together
It’s possible to combine your first and second mortgage into one and then refinance them together. This can be a great idea, especially if you have a piggyback loan. It can mean a significantly low monthly payment and, over time, more money in your pocket.
But watch out—refinancing a first and second mortgage together can be costly at first since you’ll be charged fees to apply. You’ll also have trouble getting approved if you don’t have enough equity in your home. That means this is not a great option for anyone who’s lived in the same home for a long time.
Refinancing a Second Mortgage
Refinancing a second mortgage alone can be difficult. That’s because a second mortgage is inherently riskier for the lender. After all, if you default on your payments and your house is repossessed, the first mortgage lender gets paid off first, and the second mortgage lender only gets whatever is left over.
That said, it’s not impossible. If you have a high income and a solid credit score and history, you have a good chance of being able to refinance your second mortgage with a lender.
How Does Refinancing Your First Mortgage Work When You Have a Second?
When you’re refinancing your mortgage, your second mortgage is legally allowed to be promoted into the primary position. If you end up defaulting on your existing mortgage’s monthly payment and having your home repossessed, the second mortgage lender will get your home. Any lender handling your refinance won’t agree to this.
So, before you can refinance your first existing mortgage, you have to get the second mortgage lender to agree to stay in the subordinate position, even after the refinance. The new mortgage lender can then take over the primary position.
Beware—resubordination is not easy to achieve. In order to make it happen, there are a few requirements:
- You must be up to date with all your current mortgage payments
- You may not use your primary mortgage as security to take out cash or consolidate debt
- You will have to pay certain fees associated with resubordination
What if Resubordination Doesn’t Work?
A second mortgage refinance may not work for everyone, so they may turn to resubordination. If your lender does not agree to resubordination, you still have a few more options. One might be trying to negotiate with the lender or loan officer. In some cases, threatening to leave and switch to another lender may do the trick! If that doesn’t work, follow through and try your luck with a new lender. That new lender may have different policies and be happy to agree to a resubordination.
If the bank or credit union denies your request for resubordination, you can try to pay off the full loan amount of your second mortgage with another loan instead of refinancing. Sometimes banks and credit unions will propose a package—refinancing the first mortgage alongside offering a large enough refinance loan to pay off the second mortgage loan.
Sometimes this is a great solution. But it’s not a good idea for all people in all circumstances.
If you do try to pay off your second mortgage with a conventional loan instead of refinancing, pay close attention to the loan term. Don’t get so swept up in the excitement of refinancing that you ignore the details. Remember, you are essentially applying for a brand-new refinance loan on top of your primary mortgage loan, so you need to make sure that everything is favorable to you.
If your second mortgage loan has a fairly low balance, taking on a new home loan may not make a lot of sense. On the other hand, if your second mortgage has a higher interest rate, taking out a loan to pay it off might be a great idea, so your interest payments don’t accumulate.
The Sale-Leaseback Option
There is another option out there for people who decide against refinancing their original mortgage or consolidating their loans. A sale-leaseback program allows you to sell your home and then keep right on living in it. The result? You can convert your home equity to cash, and afterward, you’ll still go on living in your own home.
With a sale-leaseback program, there are typically no minimum income requirements and no credit checks that typically come with other alternatives like a home equity line of credit (HELOC) or home equity loan. The whole process moves along quickly, and the application process is easy and fast.
Through sale-leaseback options, you can also get the money you need now by using equity to buy a second home or use the money however you’d like. There’s no need for refinancing your second mortgage. Once you are able to convert your home equity funds, you can use them for whatever you need. It’s like your own personal loan, but better because it’s your money. Some customers put their home equity funds towards starting a new business. Others use them to put a family member through college. The possibilities are limitless.
If you’re looking at refinancing a second mortgage, you may face strict terms that aren’t always favorable to you. Talk to a financial consultant to decide if a second mortgage refinance could be a good option for you.