If you're looking into refinancing your home and have a second
mortgage or a home equity loan or line of credit, in some cases
you may be out of luck.
If you want to refinance your primary loan, you first must
convince the lenders holding any second position loans to agree
to continue to be in a subordinate position behind the new
primary loan. This is called Subordination.
When the housing market was in an upswing, getting lenders
holding second position loans to agree to subordination wasn't
much of a problem. In many cases it wasn't even necessary to ask
second position loans to be carried over because the home may
have increased so much in value that the second mortgage or home
equity loan could be paid off in the refinance. Even if a
homeowner requested that a second position loan be carried over
in subordination to a new primary loan, the home's increasing
value made the lender much more likely to agree to a position of
subordination.
With the current housing market, this is no longer the case.
Secondary position lenders are now much less likely to agree to
remain subordinate. Some will only agree to subordination if you
first pay down the principal on the second position loan, which
puts them in a better risk position.
In other cases, you may have no choice but to refinance your
secondary loan. This is an option worth looking into, especially
if it means a lower interest rate or a savings on your monthly
secondary loan payment. The process of refinancing a secondary
loan is essentially the same as refinancing your primary
mortgage. If you choose this option, you'll need to shop around.
Just be sure to talk to your mortgage professional and the new
mortgage company about your desire to refinance your primary
mortgage. If the new mortgage company for your secondary loan is
no more agreeable to remaining subordinate in a primary mortgage
refinance, you'll be back in the same position you started off
at, if not worse.
If you are planning on refinancing your primary loan and have a
second position loan such as a second mortgage, home equity loan
or home equity line of credit, always be sure to contact the
lenders for your second position loans first. They will take a
look at your loan, the market in your area and your financial
situation. They will then let you know if there are any changes
that they will require in order to agree to subordination behind
a new primary mortgage.
If you don't contact your second position lenders before
attempting to refinance your primary mortgage, you may end up in
an uncomfortable position once the secondary lender is informed
of your pending refinance. Knowing in advance what your
secondary lenders would require before agreeing to subordination
rather than finding out when the refinance is in process will
put you in a much better position. Having to stop a refinance in
the middle of the process will end up being a waste of time, as
well as a waste of money. You will still be responsible for
paying for the refinance work that has already been done as well
as any related fees that have been necessary up to the point
where the refinance was stopped.
Be sure you know all of your responsibilities and options
before you proceed with a refinance, especially if you have
secondary position loans.
J Suffie: Refinancing is a big issue right now. A lot
of people would be wondering if they should refinance their
mortgage. Depending on the situation the pros may outweigh the
cons. Get the information you need to make a decision here: http://www.refinancingright.com.
