- Home owners may refinance their current second mortgage into a HELOC. HELOCs provide home owners with a line of credit secured by the equity in their home. One main advantage is the home owner only pays interest on the amount of the loan actually drawn. Even though the credit line maybe for $50,000, if the home owner only has used $25,000 of the loan he only pays interest on the $25,000 used, not the entire $50,000 line. HELOCs are usually adjustable-rate mortgages, so the interest rate can change over time. Most banks, both large and local, typically offer HELOCs.
- Some home owners prefer to refinance into a more stable and predictable fixed-rate second mortgage. Fixed-rate second mortgages are like most other installment debts. If the home owner borrows $50,000, he receives a check for $50,000 at closing. The monthly mortgage payment required is based upon the initial loan amount of $50,000. Even if the home owner pays the debt down by $10,000 in one month, the loan payments still reflect the initial $50,000 balance. Typically fixed-rate second mortgages are closed once are paid off, unlike HELOCs, which can be utilized multiple times.
- Home owners may also combine their first and second mortgages into one refinanced loan. Most mortgage lenders who offer first mortgage loans allow home owners to combine their first and second mortgages into one loan. If the new loan amount exceeds 80 percent of the home's value then the new first mortgage may require mortgage insurance. Additionally, if the second mortgage was not completely used to purchase the subject property, then the new first mortgage lender may treat the new refinance loan as a cash-out refinance. This typically requires higher credit scores and a slightly higher interest rate than a rate-term refinance.
- The federal government and some state governments offer help to home owners who are struggling to make payments on their second mortgages. The federal Making Home Affordable program and some state programs provide assistance to home owners with second mortgage loans with unaffordable payments. These programs can help home owners stay in their homes when they are facing foreclosure. Home owners must qualify for the programs; contact your state's housing authority for details or a HUD approved nonprofit housing counseling agency to see if your situation qualifies.
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