So I’m sitting at my kitchen table last March staring at two mortgage statements, and it hits me – I’m paying way too much every month. I had my original mortgage from when I bought the house, plus this second mortgage I took out to redo the basement. Two separate payments, two different rates, both killing me.
My buddy James comes over for coffee and I’m complaining. He goes why don’t you just refinance both together? And I’m like… wait, you can do that? Apparently yes. You can refinance 1st and 2nd mortgage at the same time into one loan. Who knew?
When It Finally Clicked
The first mortgage was $214,000 at 3.875% interest. Wanted to borrow another $47,000 for a kitchen renovation. Every month I was paying $1,450 on the first mortgage. If I took a home equity loan at 7.2% for the $47,000, that would add another $380. The total would be $1,830.
James tells me rates have dropped. I honestly hadn’t been paying attention because life gets busy. Started googling and found out when you refinance 1st and 2nd mortgage together, you’re basically getting one new loan that pays off both old ones.
Sounded too good to be true, but worth making some calls.
Talking to the Bank
Called my bank first. Got transferred three times before reaching Rick in mortgages. Explained my situation and he was patient even though I sounded clueless.
Rick said current rates were around 6.5%. If I refinanced everything together at that rate, I’d lose my great 3.875% rate on the $214,000 I already owed. That got my attention.
He ran numbers for a cash-out refinance. The new loan would be $261,000 my $214,000 balance plus $47,000 cash. At 6.5%, monthly payment would be around $1,650. Actually $180 less than keeping my current mortgage and adding a home equity loan payment!
I felt all smart about the lower payment. The refinance 1st and 2nd mortgage choice depends on your current rate and how much you’re borrowing.
Then Rick showed me the long-term numbers. Yeah, the monthly payment was lower. But I’d be paying 6.5% interest on the entire $261,000 instead of keeping my 3.875% rate on $214,000. Over the life of the loan, I’d pay like $80,000 more in total interest.
Lower payment but way more money overall. Once Rick explained I’d be trading my 3.875% rate for 6.5% on money I’d already borrowed at the better rate just to get $47,000 cash – yeah, I felt dumb.
The Closing Costs
Refinancing would cost $5,000-$7,000 in fees. The home equity loan was only $2,100. Huge difference.
I looked at no closing cost refinances but they just built costs into a higher interest rate. You’d pay way more over 30 years.
What I Actually Did
Went with the home equity loan. Had that great 3.875% rate and didn’t want to lose it. Knew exactly how much I needed. Could handle two payments.
The application wasn’t bad. Pay stubs, tax returns, bank statements. Appraisal came in at $392,000. Took 22 days total.
The refinance 1st and 2nd mortgage choice depends on your current rate and how much you’re borrowing.
Now I’ve got two payments – $1,450 and $378. Set up autopay. Kept my low rate on the big mortgage which feels smart.
When Refinancing Works
My neighbor Jerry refinanced last year and made out great. His original rate was 6.75% from 2018. He refinanced to 3.25% and his payment dropped $400 monthly, even taking $35,000 cash for a new roof.
Jerry was improving his rate AND getting cash. That’s when refinancing is perfect.
Also if you’re changing your loan term. My buddy Tom went from 30-year to 15-year. Payment went up but he’ll save around $150,000 in interest.
What I Wish I’d Known
Check your current mortgage rate first. If it’s really low, I probably don’t want to refinance.
Think about how long you’re staying. We’re here at least 8 more years, so long-term savings mattered. Moving in two years? Different math.
The refinance 1st and 2nd mortgage choice depends on your current rate and how much you’re borrowing.
Get quotes from multiple places. I checked my bank, a credit union, and an online lender. Credit unions had lower fees, saved us $600.
Home equity loan interest is tax deductible when you use it for home improvements. Keep receipts.
The Kitchen Is Amazing
The kitchen is gorgeous. New everything. My wife cooks again, saving on takeout. The contractor went over budget but we had a cushion.
Worth adding another payment? Absolutely. A house is worth more, we love it.
The refinance 1st and 2nd mortgage decision kept me up at night. But once I understood the numbers for my situation, it became clear. Kept my good rate, borrowed what I needed, got the kitchen done.
Final Thoughts
Figure out your current mortgage rate first. If it’s low, protect it. Home equity loan lets you keep that rate while getting cash.
If your rate is high or you want to change loan terms, refinancing makes more sense.
Talk to someone who knows this stuff. I thought Google was enough but Rick explained things that actually clicked. Could be a credit union or mortgage broker. Just someone who can run numbers for your situation.
The refinance 1st and 2nd mortgage choice depends on your current rate and how much you’re borrowing. For me, keeping that 3.875% was worth two payments. For someone with a higher rate, refinancing might save thousands.
Don’t listen to your cousin’s financial advice unless they work in finance.