Due to the hassle of paying mortgages twice a month, many homeowners have begun to consider refinancing their first and second mortgages into one loan. Combining two loans into one mortgage is convenient and saves money, but homeowners should carefully consider the risks and rewards before choosing to refinance their mortgage.
Benefits of combining first and second mortgages
In addition to mortgage consolidation and monthly payments, mortgage consolidation can reduce monthly payments to mortgage lenders. If you buy your first or second mortgage before the mortgage rate starts to fall, you’re probably paying at least 2 percent higher than the current market rate. In this case, refinancing will be of great benefit to you. Refinancing both mortgages at low interest rates can save you hundreds of dollars in your monthly mortgage payments.
In addition, refinancing two fixed rate loans can be profitable in the long run if you accept the first and second mortgages at adjustable mortgage rates. Even if the current rates are low, these rates do not necessarily remain low. Floating rate mortgages are free to increase due to fluctuating market trends. Higher mortgage rates will dramatically increase your mortgage payments. Refinancing both mortgages at a fixed rate helps maintain mortgage predictability.
Disadvantages of refinancing the first and second mortgages
Before choosing to refinance your mortgage, it is essential to consider the disadvantages of combining two mortgages. To get started, refinancing a mortgage involves the same steps as applying for your first mortgage. Therefore, you have to pay the closing fee and commission. In this case, refinancing is best for those who plan to live in the house for a long time.
Lenders may not approve low interest rate refinancing if their credit score drops significantly in recent years. Be prepared to pay higher interest rates by refinancing and consolidating both mortgages. Carefully compare your savings before accepting an offer.
In addition, refinancing both mortgages may require payment of private mortgage insurance (PMI). PMI is required for mortgages with less than 20% capital. To avoid paying private mortgage insurance, homeowners may consider refinancing their two mortgages separately rather than combining them together.