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Refinance 1st And 2nd Mortgage

By Edited Oct 27, 2013 0 0

With today's financial market providing unprecedented low interest rates many people are considering their option to refinance their 1st and 2nd mortgage by combining them into one mortgage and one payment. Combining both your mortgages into one can save you thousands of dollars and lower the overall cost of your mortgage loan. In many cases, an individual's first mortgage rate is reasonable but more than likely at a higher rate than was is currently being offered on the market. Second mortgages are usually higher then your first mortgage so this effect is amplified.

There are many financial advantages when you get a 2nd mortgage refinance loan. Some of those advantages include overall cost savings for the life of your mortgages. Not only will your monthly payments decrease but the overall interest you would have paid out over the term of the loan will be reduced when you refinance your 1st and 2nd mortgage. Consolidating two or more loans will usually reduce your monthly payments but combining mortgages can greatly reduce total interest paid to your lender.

If you refinance your 1st and 2nd mortgage using a fixed rate mortgage and pay closing costs during the refinancing process rather than adding that to your overall principal balance you may be able to reduce the interest rate of the loan even lower. The other way to get a lower rate is if you have an excellent credit rating. Individuals with high credit ratings tend to be offered lower interest rates for any loan over those with low credit ratings. The risks to the lending companies are greater with someone who has a lower credit rating so they will raise their interest rates to help ensure profit can be made on the loan.

If your goal for refinancing your 1st and 2nd mortgage is to save on monthly payments and overall interest paid to your mortgage lender, then avoid a variable rate mortgage loan. These types of loans will start out with very low interest rates upfront but as the term of the loan continues the interest rates rise. In most cases in less than ten years your interest payments will be well over the current market rates. The safest way to maintain a consistent payment over the long term is to go with a fixed rate mortgage. This offers you stable interest rates throughout the term of your loan and reduces the overall interest payout.

Prior to deciding on whether you will refinance, make sure you investigate all the upfront closing costs and fees associated with refinancing mortgages. If you are planning on living in your home for an extended period of time then it may be well worth refinance 1st and 2nd mortgage. However if you plan to move within two to five years of your refinancing you may want to reconsider. Weight the costs of the refinancing versus the money you would be saving to determine if this is the right solution for your financial situation.

If you have equity in your home and plan to live there for more than five years then it could be financially sound to move forward with refinancing and combining both mortgages. If you have at least 20% equity in your home then you can also avoid paying private mortgage insurance. This type of insurance is required if you borrow more than 80% of the value of your home. The good part of this is that if you do not have to pay private mortgage insurance then your monthly payments will be reduced resulting in even more costs savings immediately and over the term of your loan. Should you ever run into trouble and are forced to declare bankruptcy then just know that a bankruptcy home loan is possible, although it's requirements are much stricter then a normal refinance loan.


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