REFINANCING YOUR MORTGAGE(S)…NOT SO EASY

About this time, just around the holidays, many people look to re-finance their mortgage. Or both of their mortgages. Sometimes to get some extra money for gifts, and sometimes to pay off credit cards.

It has been common, when buying a home and putting down less than a 20% down payment, to use a 2nd mortgage. This is common to avoid PMI (aka Private Mortgage Insurance–what people seem to think of as The Evil Empire). 

So…for those who obtained a 1st and 2nd mortgage in purchasing their home, and now want to consolidate both into one loan, not a problem (so long as they qualify for the loan itself). But what about those who obtained one loan, at any loan-to-value, and then got a new 2nd mortgage after the purchase, and now want to refinance both?  This could be a problem.

Basically, in mortgage lingo, if you want to refi a 1st and 2nd mortgage that was obtained for a purchase, this would be considered a rate and term refi.  Its more risky cousin, a cash-out refi, where you are refinancing a 2nd mortgage that was obtained after the purchase, is riskier in that it is as though you are paying off credit card debts or literally taking cash out. So rates may be higher and some programs may not allow you to even refinance if the loan-to-value is too high.

So, some people who did say thanks are now saying “thanks a lot!” if they can’t get a loan. Be careful about when you get a second mortgage.

 

26 November 2007 | First Time Homebuyers, Programs, Interest Rate | Comments

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