Could a Second Lien affect Refinancing of your Primary Mortgage?

Did you know that if you’ve taken out a second lien on your home, it is subordinate to your primary mortgage and must be dealt with when refinancing your primary mortgage?

Gone are the days when home values were “always” going up, and borrowers would use the cash they received on top of their new first mortgage to pay off the second during a refinance or sale.

Now many home owners have been going to the second lender and getting him to agree to remain in the second position during a refinance.
But sometimes these lenders holding the second decline the subordination and in doing so prevent the home owner from getting the refinance approved.

If second-lien holders are willing to consider maintaining the second’s subordination with a new first mortgage holder, they will be looking at the risk of being in a secondary position if you fail to make your payments. That means if you default, the second lender won’t receive any money until the first lender is paid in full.

Banks are more likely to accept subordination if they hold the first mortgage as well. They might offer you a better deal on the first mortgage if they hold the second. But don’t expect your bank to take the first step, though. If you want to make sure you will be offered the best terms possible, you should be proactive.

What are your thoughts?

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