Have a Second Mortgage? 3 Ways to Refinance Your First

Do you want to (or need to) refinance your mortgage but you have a second mortgage or an active home equity line of credit? These additional loans can make refinancing a little more challenging, but they aren't insurmountable obstacles. How can you successfully refinance a mortgage when other loans are involved? Here are three solutions you may be able to use, depending on your circumstances

1. Talk to the Lender

First, talk to the company that holds your second mortgage loan or the home equity line of credit (HELOC). Let them know of your intention to refinance the primary mortgage to a new loan and ask what your options are with the secondary servicer. Remember that you're not the first borrower to want to refinance, so they may have a plan in place you can tap into. 

The main issue for second mortgages is something known as subordination. Subordination means that your primary mortgage holds first right to the proceeds from a sale if you fail to pay. Then, the second lender gets access to what's left to satisfy their debts. However, when you get rid of a first mortgage, the new lender would technically take second place. No primary lender wants to do this. 

The answer is known as a resubordination agreement. With this, the HELOC or second mortgage lender agrees to take the second place again and allow the new mortgage to supplant them. Some lenders may agree to this, while others won't. Before trying other methods, you should try to talk your lenders into resubordination. 

2. Use a Cash-Out Refinance

Of course, you can always overcome second mortgage obstacles if you get rid of the second mortgage (or HELOC) itself. Unless you have liquid cash handy to pay off the secondary loan, the most common way is to refinance using what is known as a cash-out refinance.

How does a cash-out refinance work? Rather than borrowing only what you need to pay off your first mortgage, you would borrow enough to cover both it and whatever other loan or line of credit you have. Then, you pay off all the original loans and only have one new loan. In addition to making the extra loans a moot point, a cash-out refinance may save money and make your monthly payments simpler. 

3. Refinance Both Loans

Finally, you have the option to refinance all the necessary loans against the home separately. This may be more complicated from a paperwork perspective than consolidating them into one new loan, but it could be the best approach if others have failed. You would not need to seek approval from any lenders because you will use the new loans to pay off the old ones simultaneously. 

To accomplish this, you may need a lender who will refinance both the first and the second mortgage or HELOC as well. Using one provider means you don't have to do the paperwork and get qualified multiple times but can consolidate at least one part of the process. 

Don't let your worries about secondary mortgages prevent you from getting the refinancing you need. Because you have several ways of dealing with them, you can find the solution that fits your needs. 

At Secure One Capital, our team can help. We offer a wide variety of loan sizes, types, and terms to fit every homeowner. Call today to speak with a member of our knowledgeable financing team about your refinancing concerns. No matter which direction you take, the effort of refinancing will be worthwhile when you lower your monthly bills, simplify your budget, and secure your financial future.