Refinancing your mortgage can include subordinating your second mortgage. Due to the increase of refinances lenders now may have subordination departments with complex rules. What once took a short time to get a subordination now may take a while and will cost you. You must pay a fee upfront to get your second subordinated. If you are expecting a quick refinance it may be delayed if you need your current second mortgage subordinated.
Why are they called 2nd Mortgages?
Your home is still used as the collateral for the loan, (so the loan is tax deductible) but the lien is in second position. This means you keep your current first mortgage, and your first mortgage company is paid first in case of default. The second mortgage company would be paid 2nd. You will have two payments to make each month.
Second mortgages can be fixed rate and term, or variable rate - in which case they are typically called home equity lines, or lines of credit.
Rates on second mortgages are usually a little higher, because of the extra risk involved with being in second lien position.
What is subordination?
When your first mortgage is paid off, usually by refinancing, your second mortgage will need to be subordinated. This means that we will have to gain permission from your second mortgage holder to do a new first mortgage in first lien position. If we didn't get a subordination agreement from your second mortgage company - the current second mortgage would fall to first lien position - and obviously have less risk. And the new first mortgage we were doing would be in second position - and since the risk is higher - the rate would be higher. And we all want lower rates!
Second mortgage holders generally do not object to subordination, unless the first mortgage adds extra risk by being very high loan to value, or an extremely high rate. Subordination does not affect the rate or terms of the second mortgage, and the balance of the of the second mortgage does not change - unless we pay it down with the refinance proceeds.
Usually you can save more by combining the two mortgages - subordination is common usually only with Home Equity Lines when adjustable rates are low.
Please call me with all your mortgage needs.
Arnold Cohen
The Mortgage Store
303-488-5435
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