If you have a home loan, perhaps you have considered refinancing your loan. Homeowners may refinance their home loan to cash-out and pay outstanding credit card balances and consumer loans. In addition, refinancing a home loan is ideal if you have two mortgages. Combining a first and second mortgage into a new loan is a great way to consolidate debt.

Why Get a Second Home Mortgage?

Many homeowners obtain a second mortgage. The reasons vary. Some may get a second mortgage to eliminate credit card debt, whereas others may borrow money to complete home improvements. If you get a second mortgage, the funds are secured by your homes equity. In addition, a second mortgage is a separate loan amount. Because these loan amounts are smaller, the monthly payments are lower than first mortgages. However, the interest rates on second mortgages tend to be higher.

Nevertheless, the interest rates on second mortgages are considerably less than credit cards. Plus, the loan terms are fixed, which allows you to pay the balance within a few years. If you are hoping to eliminate debt, and simplify your finances, consolidating your first and second mortgage is the perfect solution.

Mortgage Loan Refinancing

Refinancing your first and second mortgage into a single loan is ideal if you have a higher interest rate on both loans. For example, homeowners with less than perfect credit may receive an initial home loan with a higher percentage. Moreover, their second mortgage may also carry a higher interest rate. If you are in this situation, try and improve your credit rating, and then apply for a new mortgage. This way, you increase your chances of being able to consolidate your first and second mortgage at a lower fixed rate.

In some instances, homeowners obtain a first and second mortgage with an adjustable rate. This is beneficial in the beginning because the rates are low. However, as market trends shift, the interest rate on both loans may increase, which will increase the monthly payments. This is dangerous. If a homeowner is unable to pay either mortgage, the lender may foreclose. Thus, it is wise to refinance both mortgages into a single loan before interest rates increase.

See my recommended Home Mortgage Refinance Lenders for the lowest rates online.

Carrie Reeder is the owner of ABC Loan Guide.