How to Refinance a Second Mortgage

Refinancing a second mortgage can be an opportunity to pay less on your home loans each month, get a lower rate or combine two mortgages into one.

People with home equity loans or home equity lines of credit, or HELOCs — two types of second mortgages — can refinance in two main ways: a cash-out refinance, which combines the first and second mortgages into one, and a second mortgage refinance, which keeps the two separate. 

Both strategies have benefits and drawbacks — as does refinancing the second mortgage altogether. For example, you’ll have to pay closing costs, which could add up to 2% to 6% of your loan total. It’s important to carefully assess why you want to refinance and whether now is the right time.

Below, we discuss the different ways to refinance a second mortgage and lenders that could help. 

Refinancing a second mortgage with a cash-out refinance

If you’re planning to use the cash-out refinance strategy, consider Better Mortgage, which offers lower-than-average rates. Plus, it lets you roll in your closing costs if you don’t have the extra cash on hand — but keep in mind, you’ll pay interest on those costs over the life of the loan. 

Refinancing a HELOC with a new HELOC

If you’re looking to refinance a second mortgage into a HELOC to start a new draw period and delay full payments for some time, consider PNC Bank. 

It has options that allow you to convert a portion or all of your HELOC into a fixed rate, so you’ll have a more predictable repayment plan when you start repayment. 

Refinancing a HELOC with a home equity loan

HELOCs typically have adjustable rates, meaning they change with the market. If you’re ready to start full repayment on your HELOC but want a steady rate, you can refinance with a home equity loan. 

Rocket Mortgage is a great lender for that. It provides a seamless user experience on its website, and it usually ranks among the top three lenders on J.D. Power’s customer satisfaction survey. It also offers a large home equity loan limit, so most customers can cover the balance of their existing loans. 

Refinancing isn’t free, so crunch the numbers to be sure you’re making the right decision. 

Before you refinance, see whether your lender can help you address the issue you’re having with your current loan. If you want a lower rate, different terms or a different repayment structure, your lender may be able to help.

If that’s not an option, think carefully about why you want to refinance. 

If you’re looking for a fixed rate 

One reason HELOC borrowers may want to refinance is to trade their adjustable rate for a less risky, more predictable rate — even if that rate is higher than their current adjustable rate. 

If this is your situation, talk with a financial advisor about whether this is right for you. 

If you want a longer draw period 

Borrowers may not be ready to start repaying their HELOC. 

A longer draw period means that you’ll have more time before full principal-and-interest repayment; however, another draw period means your principal will still accrue interest. 

Similarly, consult a financial advisor before making a move.  

If you’re trying to get a lower rate 

If you’re looking for a lower rate, make sure your credit is in tip-top shape and that you’ve paid down other debt before applying. This will help you get the best rate possible. 

Additionally, consider your options. For example, if you’re exploring a cash-out refinance, you want to make sure that the rate on your refinance will be lower on both your primary and secondary mortgage. 

Consider the rate market as well. You may want to wait until rates are significantly lower than when you took out the loan to ensure it’s worth what you’ll pay at closing. 

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every mortgage review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties and we pride ourselves on our journalistic standards and ethics.

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