Combine your mortgages: Consolidate first and second liens

Combining your first and second mortgage

If you have both a first mortgage and a second mortgage (or HELOC), you're making two payments to two lenders every month. Combining them into a single loan can simplify your finances and potentially save you money.

Why you might have two mortgages

There are several common scenarios:

Piggyback loans: When you bought, you may have used an 80/10/10 or 80/15/5 structure to avoid PMI. The second mortgage served a purpose at purchase, but now you might be able to consolidate.

HELOC for renovations: You tapped equity through a HELOC to fund home improvements. Now you have two payments.

Home equity loan for other expenses: You took out a second mortgage to pay for college, debt consolidation, or other needs.

Assumed a second lien: Some purchases include seller financing as a second mortgage.

Benefits of combining

One payment instead of two: Simpler budgeting, less chance of missed payments.

Potentially lower blended rate: If your HELOC or second mortgage has a high rate, combining into a first mortgage at today's rates can reduce your overall interest cost.

Fixed rate protection: HELOCs have variable rates. Converting to a fixed-rate first mortgage eliminates rate uncertainty.

Cleaner financing picture: Having a single mortgage can make future refinancing or selling simpler.

How it works

Combining mortgages is technically a refinance where you pay off both existing loans with one new loan.

Example:

• First mortgage balance: $300,000 at 6%
• HELOC balance: $50,000 at 9% variable
• New combined loan: $350,000 at 6.5% fixed

In this case, you'd have a slightly higher rate on the first mortgage portion, but a lower rate on the HELOC portion, and you'd eliminate the variable rate risk.

When combining makes sense

The math works best when:

Your second mortgage has a high rate: If your HELOC is at 9%+ and first mortgage rates are lower, combining usually saves money.

You have significant HELOC balance: The larger your second mortgage balance, the more impact the rate difference makes.

HELOC rates are rising or volatile: Locking in a fixed rate provides stability.

You plan to stay in the home: Closing costs need to be recouped through savings. Longer timeframe = better payback.

When to keep them separate

Sometimes keeping two loans is the better choice:

Low first mortgage rate: If your first mortgage is at 3% and you'd be refinancing to 6.5%, combining doesn't make sense. You might just pay down the HELOC aggressively instead.

Small second mortgage balance: If you only owe $10,000 on the HELOC, the closing costs of refinancing might exceed the savings.

Selling soon: If you're moving in a year or two, the closing costs likely won't pay off.

Equity requirements

To combine mortgages, you'll need enough equity for the new loan. Most lenders require:

• At least 20% equity remaining after the refinance
• Combined loan-to-value (LTV) of 80% or less for best rates

If your first and second mortgage balances together exceed 80% of your home's value, you may need to pay down the balance or accept mortgage insurance.

The process

1. Get a quote: We'll look at your current mortgages and compare to combined options
2. Review the numbers: Calculate break-even point and total savings
3. Apply for refinance: Standard refinance process
4. Appraisal: Confirms home value and equity position
5. Closing: New loan pays off both existing liens

Most refinances close in 30-45 days.

Tax considerations

Mortgage interest deductibility rules have changed. For mortgages after 2017, interest is only deductible on debt used to buy, build, or improve the home (up to $750,000 total).

If your HELOC was used for home improvements, the interest may be deductible. If it was used for other purposes, it's not. Combining loans doesn't change this, but consult a tax professional for your situation.

See if combining makes sense

Let's look at your current mortgages and see what combining would look like. Get a quote with your mortgage details, or schedule a call to discuss your situation.