Refinance To Combine 1st And 2nd Mortgage For Cost Savings

By on May 25, 2017

Refinancing your first and second mortgages require considerable thought. A lot depends on the market value of your property and equity accumulated.

Ultimately, you want to save the costs of the existing loan commitments with the current lenders. This can be achieved by exploiting the best interest rates available at the moment of consideration.

How Will Refinancing Your 1st and 2nd Mortgage Loans Benefit You?

Combining 2 mortgages into one by refinancing can potentially result in getting a better deal from the lender because there is a bigger considerable loan amount and the increase in the loan quantum can result in better interest rates.

It’s like a bulk purchase. And bulk purchasing usually come with discounts.

This will lower your monthly repayments.

Very often, you may only find lower interest rates only under certain conditions. But when you combine two mortgages into one, you do have some bargaining power as a lender will either want to keep you as a customer, or want to acquire you as a customer.

Refinancing a first and second mortgage requires some extra considerations.

Depending on your equity, you may find that combining the two results in a higher interest rate. You may also find that you have to carry private mortgage insurance (PMI) with the refinanced mortgage.

Inevitably, properties with significant equity benefit most from consolidating loans. This is assuming that you indeed get a better rate.

Remember to note the total amount of interest you will pay or save. So don’t just focus on the monthly repayment amount.

Depending on your home equity, you may find that you may not get the lowest interest rates or even having to purchase private mortgage insurance. But even so, refinancing your home loan should still save you cash.

To really find out if refinancing will truly benefit your cause, check up on lenders or brokers.

Because of intense competition in this industry, there are always new promotions with varying terms. I will be shocked if there isn’t 1 loan package that will help you save cash.

You can compare costs by adding up the interest of your existing loan and the potential new one. Compare mortgage interest payments with each potential refinancer or lender.

Do not leave out the cost incurred for refinancing.

You will have to pay fees like stamp duties, valuation charges, etc. Be sure that you can recoup these costs with your interest savings.

While refinancing two mortgages will compound your savings, you may decide later to go ahead with only one or both separately depending on your own personal preferences and judgement.

Remember to read up the terms and conditions while being clear on the loan structure before signing up with a lender.

It’s about savings

Refinancing your 1st and 2nd existing mortgage loans together will give you good bargaining power over the lender for the best interest rates.

Other than that, it will also help you save on charges because you will only have to pay them on 1 combined loan instead of 2 separate ones.

To make sense out of refinancing your properties, you should look at and analyze the loan repayment schedule, the interest rates, tenure, processing charges, conditions, etc.

Because loan companies would rather finance 1 mortgage than 2 separate loans, the 2nd mortgage rates are often at least a little higher than 1st.

And because combining 2 properties gives the lender a bigger security, and therefore a bigger profit, lenders don’t mind being flexible on the lowest interest rates as they still make more profit in dollar value. And since you will only be paying processing fees once instead of twice, you will save on these “administrative” fees and closing costs.

It is important that you look closely at the terms and chose wisely.

Unlike your first initial home loan where you are making a purchase and would probably settle for any mortgage offered so that you could purchase that property, you now already have an existing approved liability that you are servicing with repayments.

You do have more bargaining power since you are not going to be desperate to get a loan. So evaluate and reevaluate those mortgage terms that you feel strongly for and see how they can meet you incomes requirements.

To get a lower monthly payment, take up a longer repayment schedule to stretch out the repayments.

Although this will increase your total loan interest payable, it can free up you current financial constraints. And when your current financial constraints clear up in the future, make principal payments to offset the interest costs.

If your main concern is to pay less on interest costs, opt for a shorter repayment schedule with the best interest rates.

You may be allowed to also pay points so that you can lower your mortgage rates even more. This can really be advantageous to you if you intend to keep the loan for a significant period in order to recoup the costs.

Sometimes it is better to keep two separate mortgages. Refinancing your loans individually can sometimes get you better interest rates. However, certain terms and conditions stipulated by the loan lenders may have to apply.

Keep the 2 loans separately if you plan to cash out one of your property’s equity while refinancing. Cashing out can increase the interest you will have to pay.

So remember to check up on at least a few companies to get their quotes and terms for comparison before making a decision. The best deals with the best interest rates can very likely be your current lender’s fiercest competitor.



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