Frequently Asked Questions about Second Mortgage Refinancing

Here are the answers to the most commonly asked questions about second mortgage refinancing.

Should I refinance my second mortgage?

Homeowners refinance second mortgages for a number of reasons, including securing a lower rate, reducing monthly payments, and obtaining more favorable terms. Usually, refinancing makes the most sense when the new rate you will receive is at least half a percentage point lower than your existing rate and you plan to remain in your home for at least five years. Refinancing comes with fairly large up-front costs that will take years to recoup, which is why homeowners who intend to move in the next few years should avoid it.

Will I need an appraisal before I can refinance my second mortgage?

Yes, most lenders will require an appraisal of your home before approving a refinance loan. The purpose of the appraisal is to ascertain the current market value of your home.

What expenses will I face when I refinance my second mortgage?

This will vary from lender to lender. Generally, lenders charge application, appraisal, origination, points, and other fees up front. Borrowers will also have to pay the appropriate closing costs once the loan is finalized.

Is cash-out refinancing possible with a second mortgage?

Yes, some lenders may allow you to refinance your second mortgage for a larger amount and take the difference in cash. In order to do so, you must have enough equity in your home. Remember that refinancing your loan for a larger amount in an unstable housing market could leave you owing more on your home than it is worth.

If I refinance my second mortgage, can I change the type of loan I have?

Yes, this is one of the many benefits of refinancing. If you have an adjustable-rate second mortgage and would like to switch to a fixed-rate loan for more stability, you can do so with a refinance loan. Likewise, if you expect interest rates to continue to fall, you can switch your second mortgage from a fixed-rate to an adjustable-rate loan.

Do I need good credit to refinance?

Lenders are less willing to take risks with mortgage loans nowadays, which means the credit requirements for most home loans have gone up. However, that doesn't mean that you must have perfect credit to refinance a second mortgage, but a high credit score will secure you the lowest rates.

Should I check my credit score before I refinance my second mortgage?

Yes, you should know your credit score before you apply for any major loan or line of credit. Find out your credit score for a small fee through any of the three credit bureaus (Experian, TransUnion, and Equifax). Knowing your score will help you estimate the kind of interest rate for which you will qualify.

How much should I save for closing costs?

Closing costs usually amount to a couple thousand dollars. You can ask your lender for a good-faith estimate of closing costs up front to help you prepare. In fact, your lender is required to give you an approximation of the costs of your refinancing loan within three days after you apply.