The following are some important considerations when evaluating loan options involving a subordination: Even with the above considerations, a subordination could be a very beneficial loan option.
Most mortgage lenders require that homeowners have at least 20 percent equity in their homes before they'll approve them for a refinance. When you add the challenge of trying to refinance a first and second mortgage loan -- your second loan can be a home equity loan, true second mortgage or home equity line of credit -- into one single loan at 100 percent LTV, you are truly taking on a difficult task.
If you have a loan-to-value ratio of 100 percent, you're already facing a challenging refinance. Whenever you have a second mortgage loan, you'll need the holder of that loan during a refinance to give you permission to keep the loan in a subordinate position. If you default on your loan and lose your home to foreclosure, the holder of your larger primary mortgage loan gets paid first from the proceeds of this sale.
The choice to refinance and consolidate two mortgages can eliminate higher interest loans and save you money.
Get personalized rates Homeowners may be able improve their monthly cash flow and increase the amount of discretionary income by consolidating first and second mortgages at a lower loan interest rate.
How does this type of consolidation work and is it a good idea?