How Do I Refinance, and What Is A Second Mortgage?

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READER QUESTION

How do I refinance, and what is a second mortgage?

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Bills.com Resident Expert
Dec 12, 2011
HIGHLIGHTS
  • A second mortgage is like a first, but takes second position in a foreclosure.
  • Qualifying for a refinance is the same as qualifying for a mortgage.
BILL'S ANSWER

Here is a general overview of what one needs to consider when refinancing a home, and a definition of a second mortgage.

Second Mortgage

First, I will address the topic of what a second mortgage is. Home loans in approximately half of the US are actually "deeds of trust," and the other half are mortgages. There are important legal distinctions between a mortgage and a deed of trust that are outside of the scope of your question. For the sake of this discussion we can consider deeds of trust and mortgages identical.

A second mortgage is a loan secured against a property, which is subordinated to another loan, the first mortgage, against the same property. The terminology of "first" and "second" refers to the legal position a loan has against a property, in this case real estate. For example, if one has a first mortgage of $80,000,a second mortgage of $20,000, and the home sells for $100,000, or is refinanced, the first to be paid, from the funding of the transaction, would be the lender which is owed $80,000. The second to be paid would be the lender that is owed $20,000.

Prior to the economic downturn in the housing market, many Americans purchased their homes with both a first and second mortgage. This allowed them to purchase a home without putting a down payment on the home. A homeowner could also have the option, if they qualified, of taking a second mortgage against their home in order to "pull cash out" for various purposes. Some of the more common reasons for one to take a second mortgage against their home were home repairs, reduce debt, or pay for children's education. Homeowners, can still apply for second mortgages, but due to the economic downturn they are harder to obtain. To learn more about second mortgages please read An Introduction to the Second Mortgage Loan.

Refinancing

Refinancing a home involves several key steps. First, you should determine if refinancing is right for you. For instance, you want to make sure that if you do refinance that you will save money. Second, check your credit reports and scores. Credit is a major factor in determining whether you will be able to qualify for the best interest rates and loan terms. Third, you should research rates, fees, and lenders to determine, which loan is right for you. Fourth, contact your current mortgage servicer. You mentioned that you've had trouble "getting through" to your lender. If your lender is unwilling to help you with refinancing your home, you may want to take the fifth step. The fifth step would be to contact a different lender. To read more about the steps one should consider when refinancing please read Mortgage Refinance Loan.

If you determine that refinancing is right for you, get a no-cost mortgage refinance quote from pre-screened lenders, at the Bills.com refinance savings center.

I hope this information helps you Find, Save, and Learn.

Best,

Bill

Bills.com

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