How to Refinance a First Mortgage & Pay Down a Second

How to Refinance a First Mortgage & Pay Down a Second

During a refinance transaction, you may be able to obtain a first mortgage that enables you to pay down your second mortgage at the same time. Sufficient equity in your home will be required to refinance your existing first mortgage and to facilitate the funds toward paying down your second mortgage. Your loan officer will determine the amount that you're qualified to borrow. The maximum loan amount will be based on your income and the equity within your home.

1) Order your consumer credit report. View the loan payment history for your first and second mortgages, as well as for your other revolving and installment accounts. Timely payments on your mortgages and other debts could increase your ability to receive favorable refinancing terms. Report discrepancies or disputes to the respective credit bureaus. Ensuring the accuracy of your credit history could position you to obtain more attractive loan terms.

2) Call the company that services your first mortgage. Inquire about opportunities to refinance and to pay down your second mortgage. After researching comparable home values, your lender might be able to estimate the maximum amount that you can apply toward your second mortgage balance. For instance, if your lender allows a 75 percent loan-to-value refinancing threshold, your home that's worth $200,000 will enable you to borrow a maximum of $150,000 ($200,000 x 0.75 = $150,000). If you need $125,000 toward closing costs and for refinancing your first mortgage, you'll have $25,000 to apply toward paying down your second mortgage.

3) Contact several mortgage lenders about refinancing to pay down your second mortgage. Make a list of comparable offers that provide competitive terms. Review loan offers that'll pay the amount that you're seeking toward your second mortgage.

4) Complete a loan application for the lender that meets your desired terms. List your second mortgage as an item that must be paid down with proceeds from the refinance transaction. Sign and date the applicable loan disclosures. Forward lender-requested documents promptly to avoid delays.

5) Meet with a settlement attorney to sign your closing documents. Ensure that proceeds from your first mortgage are reflected as a credit toward your second mortgage balance. Ask the settlement attorney to explain any items that require clarity. Sign and date the lender-required documents.

By Ray Cole

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