If you are having trouble keeping up with two home mortgage loans, getting rid of a high-rate second mortgage can offer financial relief. Second mortgages almost always charge a higher interest rate than first mortgage loans, which gives you a good reason to eliminate a second mortgage sooner than later. Although not every option available for doing away with a second mortgage works for everyone, some options are less costly or involve less time than others.
Pay more each month than the minimum monthly mortgage payment. You can pay down the principal quicker by rounding up your regular monthly payment. For example, if your payment is $886 each month, pay $900. Ensure the bank applies the extra to the outstanding principal balance. The more you pay down on the principal, the more money from every payment going forward will go against the principal.
Make biweekly mortgage payments to reduce the principal of your second mortgage loan faster. Shorten your loan term by several years by paying half the mortgage payment every two weeks and applying the extra two biweekly payments you make each year directly to the principal. You could save hundreds of dollars in interest besides.
Refinance your second mortgage to a shorter term. Although your monthly payment will be higher, you will pay off the loan sooner. Taking out a shorter term loan may get you a lower interest rate as well. Both an earlier payoff and lower rate will save you money in the interest you pay.
Combine your first and second mortgages into one new loan. If you have enough equity in your home to cover the second mortgage, a cash-out refinance would give you the money to pay off the second mortgage. Even though you'll increase the principal balance on your primary loan, you'll finance the balance of your second mortgage at a lower rate and have only one monthly payment to make.
Pay off your second mortgage early by cutting expenses. Along with spending less, you can increase your income by getting a part-time job, working overtime hours whenever possible or asking your employer for a raise during a good job performance review. If you have enough cash in savings, consider using the money to get out of mortgage debt. This can be an especially good idea if your savings is earning a lesser interest rate than what you paying to carry that second.
- Bankrate.com: 4 Ways to Pay Off Your Mortgage Early
- The Mortgage Professor: Refinancing When You Have Two Mortgages
- The Mortgage Porter: Refinancing When You Have an Exisiting Second Mortgage or HELOC
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- If you are underwater in your mortgage and file bankruptcy, the bankruptcy court may allow your second mortgage loan to be stripped. Like other unsecured debts in Chapter 13, you will repay a percentage of the debt according to your repayment plan. Once you complete your repayment plan, the court will discharge any portion of the second mortgage remaining.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.