Ultimate Guide to Refinancing a Second Mortgage

Your second mortgage likely felt like the right move at the time, whether it was a home equity loan to fund a major home renovation or pay off high-interest debt, or a home equity line of credit (HELOC) to help cover education costs. 

But now, with changing interest rates and shifting financial goals, you may be wondering: can you refinance a second mortgage? The short answer is yes, if you meet lender requirements.   

If you’re interested in securing a better rate or lowering your monthly payments, refinancing a second mortgage may offer the flexibility you need. 

Key takeaways 

• You can refinance a second mortgage, whether it’s a home equity loan or HELOC. 
• Common reasons for refinancing a second mortgage include lowering your interest rate, reducing monthly payments, switching to a fixed rate, or consolidating multiple loans. 
• The refinancing process is like that of a primary mortgage, starting with shopping around for the best lender, rate, and terms. 
• Before refinancing, consider both the benefits and the potential drawbacks, which may include closing costs, strict qualification requirements, and the potential for extending your loan term. 

Can you refinance a second mortgage? 

While it is possible to refinance a second mortgage, it’s important to understand the full picture before moving forward. 

A second mortgage is secured by your home and taken out in addition to your primary home loan. And just like with your original mortgage, refinancing a second mortgage can help you secure better terms, such as a lower interest rate or a more manageable payment schedule. 

To qualify, lenders review multiple factors like your credit score, income, debt, and your home’s current value. Common requirements include: 

• A credit score of at least 620 (700-plus for more competitive rates) 
• A debt-to-income (DTI) ratio of 43% or lower (total debt payments divided by gross monthly income) 
• At least 15% to 20% equity in your home 
• Documentation such as pay stubs, tax returns, and mortgage statements 

Why would you refinance a second mortgage? 

There are several reasons why you may decide to refinance a second mortgage:  

• Savings: If you qualify for a lower rate, refinancing could help lower your monthly payments.  
• Convenience: If your second mortgage is a variable-rate loan, you may want to refinance to a fixed-rate. It’s also possible to consolidate both mortgages into a single loan for easier management. 
• Equity: If you have enough equity, consolidating both mortgages into a cash-out refinance could provide funds for big expenses like home improvements or high-interest debt repayments. 

Whatever your reasons for pursuing a refinance, be sure to consider the pros and cons before you make your decision. Let’s explore some of the top advantages and potential drawbacks. 

Advantages 

Refinancing a second mortgage can offer potential benefits, including: 

• Lower interest rates that reduce overall borrowing costs 
• The ability to switch from a variable to a fixed interest rate, providing more predictable payments 
• Reduced monthly payments for better cash flow 
• The option to consolidate your first and second mortgages into a single loan 
• Access to your home’s equity via a cash-out refinance 

Drawbacks 

While refinancing can be helpful, it’s important to weigh the potential downsides: 

• Expect to pay closing costs and fees amounting to 3% to 6% of your loan principal 
• Stricter qualification requirements based on credit, income, and equity if you are consolidating both mortgages 
• Extending your loan term can result in paying more interest over time 
• Potential loss of favorable terms from your original second mortgage 

How to refinance your second mortgage 

Once you’ve weighed the pros and cons of refinancing your second mortgage and you’ve decided to move forward, what’s next? 

Fortunately, the process is relatively simple, and it’s like refinancing a primary mortgage. Here’s what you can expect: 

1. Review your current loan. Start by looking over the terms of your current second mortgage, taking note of its interest rate, payment structure, and prepayment penalties. Knowing this information at the start will help you evaluate refinance offers. 
2. Check your credit and financial health. As with any home loan, lenders will assess your credit score, income, home value and equity, and debt-to-income ratio (a measure of your ability to take on debt). The better your financial health, the more likely you are to qualify with the best possible rate and terms. 
3. Compare refinance options. It pays to shop around for lenders. Compare rates, fees, and loan terms, and consider if you want to keep your second mortgage separate or roll it into a refinance of your first mortgage. 
4. Gather the documentation. You’ll likely need to provide lenders with income statements, tax returns, home valuations, and details about your current mortgages. 
5. Apply and close. Choose a lender and complete the application process. If approved, you’ll move forward toward closing, which includes final paperwork and fees. 

Understanding how to refinance a second mortgage can help you enter the process with your eyes wide open, prepared to make informed decisions that support your financial goals — whether this includes saving money or simplifying your financial situation. 

Is refinancing right for you? 

Before you decide if refinancing your second mortgage is the right strategy for you, ask yourself the following two questions: 

1. Do I meet the necessary criteria to refinance? 
2. Would refinancing help me reach short-term or long-term financial goals? 

Consider, for example, your current interest rate. If today’s rates are lower than that of your current second mortgage and your goal is to pay less, refinancing could save you money over time. 

You’ll also want to look at how much equity you’ve built in your home, as well as your credit score. Both will impact your ability to refinance with improved terms. More equity typically means lower risk for lenders, which can help you secure a lower rate. Likewise, a higher credit score can improve your chances of approval and open the door to better loan options. 

If you feel that overall, your financial situation has improved since you took out the loan, it might be a good time to refinance your second mortgage. But, if you’re planning to move soon or your credit has taken a hit since your last loan, you may be better holding off until conditions are more favorable. 

Refinance your second mortgage with AmeriSave 

If you’re looking to refinance a second mortgage, the right lender can make a huge difference. Whether your goal is to lower monthly payments, consolidate debt, or free up cash for major expenses, refinancing could give your budget some breathing room — especially if your financial circumstances have changed since you took the original loan. 

At AmeriSave, we make the process simple. With personalized rates, a streamlined online application, and quick funding, you can move forward quickly and confidently. Our digital-first approach means less paperwork and more convenience, allowing you to move past the red tape and start saving sooner. 

If refinancing makes sense for you, take the next step and get a custom quote today. 

Frequently asked questions

What steps are involved in refinancing a second mortgage? 

Refinancing a second mortgage typically involves reviewing your current loan, a credit check, gathering relevant financial documents, comparing lender offers, and submitting a final application. Once approved, you’ll go through a closing process that’s like what you experienced with your original loan. 

What benefits might I gain from refinancing a second mortgage? 

By refinancing your second mortgage, you may secure a better interest rate, lower your monthly payments, switch from a variable to a fixed-rate loan, or consolidate debt. If you choose a cash-out option, it can also enable you to tap into your home’s quality. 

How do interest rates affect refinancing a second mortgage?

Interest rates directly impact your potential savings. If current rates are lower than what you secured in your existing second mortgage, refinancing may reduce the total interest you pay over the term of the loan as well as lower your monthly payments. 

Can I refinance a first mortgage and not a second? 

Yes, it’s possible to refinance your first mortgage while leaving your second mortgage intact, but your second mortgage lender must agree to resubordination. This means that if you were to default, their loan is second in line for repayment even if you’ve had the loan longer. Coordinating subordination between lenders adds some extra fees and paperwork to the refinancing process. 

Can I refinance two mortgage loans into one? 

Yes. This is known as mortgage consolidation. If you have at least 20% equity, you may be able to refinance both your first and second mortgages into a single new loan. This can simplify your monthly payments and potentially lower your overall interest rate.