Why Should I Combine Both Mortgages?


Why Should I Combine Both Mortgages?

Interest. The amount of interest saved by combining two mortgages together is astronomical. If you think about it from a logical standpoint, would you rather pay monthly interest on two debts or one? Now in defense, it would depend on the interest rate. However, Second Mortgage rates are usually substantially higher than a primary mortgage rate.

Combining them together would shave down payments and minimize interest payments on the second. You could keep paying what your second mortgage payment was onto the new mortgage. Since most mortgage loans nowadays do not charge prepayment penalties (at least they shouldn’t be) you could simply apply the old payment to the new debt and shave off substantial time and interest from the overall balance. This is a very financially savvy move to make on consolidating debt. This is a good practice as long you do not take out another second mortgage after consolidating the last one to the primary. In essence, this would be three mortgages on the property and will eat up most if not all the equity in the home.

A Home-Equity Line-of-Credit (HELOC) is considered a second mortgage since it is using the home as collateral. These types of loans do carry higher interest rates since they are used as a credit card (revolving credit). These types of loans are usually issued for Home Renovations or projects around the house. As this might be a great way to get cash out, doing an actual cash out refinance might make more sense both financially and for your equity. A cash out refinance will have a lower combined interest rate than a primary and a HELOC on the home.

Not only will combining both mortgages save you interest, in most cases, it will alleviate your monthly budget by eliminating the second mortgage payment. Granted consolidating both together will more than likely raise the primary mortgage payment, in most cases, it will still be substantially less than the payments separate from each other. Combining second mortgages with the primary really will change your monthly budget for the better.

This type of debt consolidation will not be beneficial for everyone. However, it is always worth a phone call to your current bank or lender to see if it is something that will be beneficial to you and the situation you have. Please feel free to reach out to Homeowners Consult if you have any questions that you would like answered.

If you have any questions about this article or maybe something else, let us know! We are here to help.

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