Combining the mortgages for two properties into one mortgage is a way of simplifying your monthly bills and can be an advantageous choice, but it is not for everybody. This step makes a lot of sense when you have enough equity in one of your properties to cover for the other mortgage loan. Before choosing this option, make sure you understand the process and what it is involved. If you want to combine two mortgages into one, the easiest way in which you can do this is by applying for a home refinance loan.
When combining two mortgages into one through refinancing, you basically use the new loan to pay off your current loans, and this consolidates them into a single loan. Refinancing will start a new mortgage term, usually with a new rate.
Refinancing is highly dependent on how much equity you have in your home. While paying your mortgage loan, you build equity in your home, and it will be the deciding factor when the lender evaluates your situation in order to give you a new loan.
A refinance can lower your interest rate and monthly payment, but whether this will happen or not depends on factors such as your current interest rates, your credit score, and your income. However, refinancing can be very costly because it will require you to pay several fees included in the closing cost.
Steps to Combine Mortgages for Two Properties
If you wish to combine the mortgages on two properties, what you essentially need is to have enough equity in one property that can support the combined value of the two mortgages. Your new loan will be a cash-out refinance loan and will most likely have stricter qualification requirements and a higher interest rate. Here are the steps to combining the mortgages for two different properties into one mortgage:
- Analyze both of your properties and find out which one has the most equity. Lenders allow a bigger loan-to-value percentage for residences than they do for properties that are considered investments. If your loan-to-value is over 80 percent, you will need to also pay a mortgage insurance, which will drive the cost of the loan much higher.
- Get quotes from several lenders. Carefully compare all of these quotes and analyze all the aspects of each loan to find the one that works best for you. You should also talk to your current or past lenders, as they might be able to offer you better deals because you have already established a relationship with them.
- Make sure you lender knows that you will be paying off mortgage loans from two different properties. The loan officer will work with the title company to acquire the payoff statement which shows the mortgage balance, the unpaid interest and what fees are required in order to release the lien on the property.
- When the loan is paid off, make sure that the lien is released. The filing and the recording of the release could take a few weeks, but if you keep a copy there shouldn’t be any issues.
Before combining the mortgages for two properties it is very important to carefully analyze what this operation entails and find out if it’s your best option. Talk with your accountant or a professional adviser to find out how combining two mortgages will affect you and if you should go for it or choose another path.