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How to refinance second mortgage

Wed Sep 6, 2006 04:09PM | By Tony

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Q: I want to refinance second mortgage I have on my house. I bought this house a year ago with 10 percent down for $350,000. I had a rather bad credit with the scores at 608, 615 and 627. My mortgage broker recommended 80/10/10 and I went for it. On the first mortgage, the interest rate is 6.75%. The second mortgage I am trying to refinance had one year prepayment penalty that just expired. The interest rate is 11.5 percent. What are my options? My credit scores are 660, 683 and 691.

A: You have several options. You can refinance second mortgage only, leaving the first one alone, if the terms fit your needs. Your CLTV or combined loan-to-value ratio is at least just below 90 percent, likely even lower, if your house value went up after a year. You should be able to get a home equity line of credit to refinance your second mortgage at around 8 or 8.5 percent. Basically you will pay off second mortgage with this new line of credit.

Second, you can refinance with the new second mortgage, but this is going to be the most expensive option since you will have to pay closing costs and even points. Try to talk to the same mortgage broker and see, what he or she has to offer.

Third option is the best if you are willing to refinance both mortgages rolling the second into the new mortgage. Your new mortgage would be about $315,000, so to get the best deal, your house has to be appraised at $393,750 minimum. If it is possible, you can get a very good deal with your credit scores on either fixed or adjustable rate mortgage. If the appraisal comes short, there are still few options which you can use to get rid off private mortgage insurance or PMI.

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