Should You Consolidate 1st 2nd Mortgages?

2007-03-08 10:33:40

( Financial )



A mortgage is a loan taken against the market value of your home. A second mortgage is another loan, which is secured against the same property; however, second mortgage rates tend to be higher. You will risk losing your home if you fail to make payments on both mortgages. The bank will sell your property to recover the money, which you borrowed for both mortgages, giving priority to paying off your first mortgage. If there is any money left from the payment of the first mortgage, it is then used to pay the second mortgage.

People that make 1st 2nd mortgage payments always go through the inconvenience of having to make separate payments each month. It is possible to combine 1st 2nd mortgages; however, you should carefully consider its advantages and disadvantages before making a final decision.

In most cases, a 1st 2nd mortgage consolidation can provide a lower interest rate, and thus save you money in the long run.

If your 1st and 2nd mortgages are of the adjustable rate type, you are free to switch to a fixed rate mortgage at any time. Adjustable rate mortgages provide monthly interest rates that fluctuate each month. Converting to a fixed rate mortgage will save you money because of the fixed monthly interest rate.

In consolidating 1st 2nd mortgages, you must be ready to pay for closing expenses; therefore, 1st 2nd mortgage consolidations are only ideal for individuals who intend to stay in the home for many years to come.

If you have less than a certain amount of equity left in your home, a 1st 2nd mortgage consolidation may obligate you to pay for private mortgage insurance. As a result, some individuals decide against consolidating both mortgages, and opt to refinance both mortgages separately instead.

A mortgage consolidation is not recommended for people with low credit scores. Financing companies will not be able to provide you a lower interest rate because of your history of making late payments, or non-payments.

If you have decided to consolidate your mortgages, it is best to approach several mortgage lenders to bet advise on whether you should combine or refinance your mortgages.


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