{"id":124,"date":"2022-10-25T04:29:32","date_gmt":"2022-10-25T04:29:32","guid":{"rendered":"https:\/\/www.privamortgage.com\/blog\/?p=124"},"modified":"2023-09-14T07:43:39","modified_gmt":"2023-09-14T07:43:39","slug":"how-to-refinance-a-second-mortgage","status":"publish","type":"post","link":"https:\/\/www.privamortgage.com\/blog\/how-to-refinance-a-second-mortgage\/","title":{"rendered":"How to Refinance a Second Mortgage"},"content":{"rendered":"

Did you know you can use the equity you built in your home? You do this by tapping into it with a second mortgage, and you don\u2019t have to sell your home to access the funds.<\/span><\/p>\n

A <\/span>second mortgage<\/b> can be a home equity loan or a line of credit. A <\/span>home equity loan<\/b> has a fixed interest rate and provides the funds in one lump sum. A line of credit has a variable interest rate, and you can draw on your credit line as needed.<\/span><\/p>\n

Sometimes, though, you need to <\/span>refinance your second mortgage<\/b>. Here\u2019s how it works.<\/span><\/p>\n

Reasons to Use a Second Mortgage<\/b><\/h2>\n

There are many reasons you might consider borrowing a <\/span>second mortgage<\/b>. However, here are the most common reasons borrowers use one.<\/span><\/p>\n

Buy a Home<\/b><\/h3>\n

If you want to avoid <\/span>Private Mortgage Insurance<\/b>, you can use a second mortgage as a form of the down payment on the home. For example, if you borrow 10% of the home\u2019s value with a second mortgage, put 10% down yourself, and borrow 80% with the first mortgage, you avoid PMI and keep your mortgage payments low.<\/span><\/p>\n

Have a Line of Credit<\/b><\/h3>\n

Some borrowers tap into their home equity with a <\/span>HELOC (home equity line of credit)<\/b>. A HELOC is a line of credit on your home; it works like a credit card. You can leave the funds untouched and not owe any interest, or you can draw the funds, use them how you want, and pay interest only on the amount you withdrew.<\/span><\/p>\n

Pay off Debt, Pay a Large Expense, or Renovate your Home<\/b><\/h3>\n

Another way to borrow money from your home is a home equity loan. This loan isn\u2019t a line of credit. Instead, you receive all funds in one lump sum and only one time. You can use the funds however you need and have a fixed-rate loan with monthly principal and interest payments.<\/span><\/p>\n

Steps to Refinance a Second Mortgage<\/b><\/h2>\n

If you already have a second mortgage, you might wonder how you can refinance it. Some borrowers want to refinance for a <\/span>fixed-rate loan<\/b> versus an <\/span>adjustable-rate HELOC<\/b>. Others want to tap into more equity or don\u2019t like their loan terms.<\/span><\/p>\n

There are a couple of ways to refinance a second mortgage.<\/span><\/p>\n

Cash-Out Refinance<\/b><\/h3>\n

If you have at least 20% equity in your home, you can use a <\/span>cash-out refinance<\/b> to consolidate your <\/span>home equity loan<\/b> or HELOC with your primary mortgage.<\/span><\/p>\n

Borrowers choose this option to get more competitive interest rates and to consolidate their payments into one loan. A cash-out refinance can be a conventional, FHA, or VA loan, but you must have at least 20% equity untouched in the home to qualify.<\/span><\/p>\n

Refinance your HELOC into a Home Equity Loan<\/b><\/h3>\n

Some borrowers prefer to turn their HELOC into a home equity loan<\/a>. This is common when borrowers have a competitive rate on their first mortgage and don\u2019t want to lose it, but they want a fixed rate on their second mortgage.<\/span><\/p>\n

HELOCs have a variable interest rate that can be adjusted monthly. However, the unpredictability of the payment and amount of interest owed can make it hard to budget, so refinancing into a fixed-rate home equity loan can be desirable.<\/span><\/p>\n

Before choosing this option, ensure you understand that you won\u2019t have a credit line to draw on any longer as you lose the revolving part of the loan.<\/span><\/p>\n

How to Qualify for a Second Mortgage<\/b><\/h2>\n

Qualifying for a <\/span>second mortgage<\/b> is similar to qualifying for the first mortgage. However, second mortgage lenders<\/a> take more risk than first mortgage lenders, so some may have tighter restrictions.<\/span><\/p>\n

In general, lenders require:<\/span><\/p>\n