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September 4, 2019

Can You Refinance If You Have a Second Mortgage?

Countless Americans are struggling to make their mortgage payments, even after taking out a second mortgage. More and more of them are looking into refinancing, but they're not sure if it's actually possible for them. Can you refinance if you have 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 the process. You'll also learn about an alternative to refinancing.

Refinancing Your Mortgages

If you're wondering, "Can I refinance my second mortgage?", know that there are a few different ways to go about it. You can refinance your first and second mortgages together into one, or you can refinance only the second one.

Refinancing a First and Second Mortgage

It's possible to combine your first and second mortgage into one and then refinance them together. This can be a great idea. It can mean significantly lower monthly payments 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 lender gets paid off first, and the second lender only gets whatever is left over.

That said, it's not impossible. If you have a high income and a solid credit history, you have a good chance at being able to refinance your second mortgage with a lender.

How to Refinance Your First Mortgage When You Have a Second Mortgage

When you refinance your first mortgage, your second mortgage is legally allowed to be promoted into the primary position. If you end up defaulting on your payments and having your home repossessed, the lenders behind the second mortgage will get your home. Any lender handling your refinance won't agree to this.

So, before you can refinance your first mortgage, you have to get the second lender to agree to stay in the subordinate position, even after the refinance. The new 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 mortgage payments
  • You may not use your first 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?

If your lender does not agree to resubordination, you still have a few more options. One might be trying to negotiate with the lender. 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 polices and be happy to agree to a resubordination.

Consolidating Loans

If the bank denies your request for resubordination, you can try to pay off the full amount of your second mortgage with a loan. Sometimes banks and credit unions will propose a package—refinancing the first mortgage alongside offering a large enough loan to pay off the second mortgage. 

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 loan, pay close attention to the terms. 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 loan, so you need to make sure that everything is favorable to you.

If your second mortgage has a fairly low balance, taking on a new loan may not make a lot of sense. On the other hand, if your second mortgage has a high interest rate, taking out a loan to pay it off might be a great idea.

The Sell and Stay Option

There is another option out there for people who decide against refinancing their mortgages or consolidating their loans. EasyKnock's Sell and Stay program allows you to sell your home and then keep right on living in it. The result? You'll have access to your home equity in just a few weeks, and afterward you'll still go on living in your own home.

Under the Sell and Stay program, you can:

  • Access your home equity in under three weeks 
  • Stay in your own home—you'll be paying rent instead of making mortgage payments
  • Repurchase your home at any point during your lease

With the Sell and Stay program, there are no minimum income requirements and no credit checks. The whole process moves along quickly, and the application process is easy and fast. Typically, banks and other lenders can take at least 40 days to close on a deal, but the Sell and Stay program can put money in your pocket in just 21 days.

Once you have access to your home equity funds, you can use them for whatever you need. 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.

Refinancing can have strict terms that aren't always favorable to you. However, Sell and Stay is designed to be flexible and to put the power of choice in your hands. You can stay in your own home and use your cash to pay down debt, or, if you'd rather, you can move out and use your new funds to purchase a brand new home.

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