Many consumers are becoming worried about the rising interest rates on their second mortgages and want to know if they should refinance to consolidate their first and second mortgage into one. One factor a borrower can use to gauge if they should refinance or not is a blended rate calculation. The blended rate is the weighted average rate for your first and second mortgage at any given time. If you can lower your blended rate by refinancing your first and second mortgage into a single loan, you may want to refinance. The tricky part is if you decide to wait, how long you should wait. If you refinanced recently and have a low fixed rate first mortgage, you may have to choose between a higher fixed rate or keeping your second mortgage that continues to increase in rate.

As the balance on your first and second mortgage change, so will your blended rate. The best way to calculate your current blended rate is to use the following example: First mortgage balance multiplied by first mortgage rate plus the second mortgage balance multiplied by the second mortgage rate and divide that number by your total balance of both loans. There are calculators available on the Internet that can quickly calculate your blended rate if you plug in these basic numbers. Of you can contact me and I can help you calculate your blended rate and decide if refinancing is right for you.

Second mortgages are often tied to the prime rate. The prime rate has been adjusting upward the last several years. Consolidating your second mortgage with your first is often worthwhile even if rates have gone up and your first mortgage is at a very attractive rate compared to what is currently being offered.

If the balance on the second mortgage is relatively small and will be paid off soon, you may not want to refinance the two mortgages into one single loan. There will be costs associated with refinancing. If the second mortgage will be paid off within the next year, your exposure to the increasing rate environment is limited. In this case, the security offered by a fixed rate refinance may not justify the closing costs.

If your second mortgage is a home equity line, it is tied the prime rate which has been rising rather quickly. If you have a low rate first mortgage and do not want to refinance it to consolidate your two loans, consider replacing your equity line with a fixed-rate second. Rates are lower and are fixed for the life of the loan which can be up to thirty years. Ask your mortgage consultant about these.

All other things being equal, sometimes homeowners just want to have one mortgage payment to make every month.

Another factor to consider is that you loose the flexibility, and security that a Home Equity Line of Credit provides. Many borrowers keep an open line of credit even if it has no balance as a rainy day fund. In the event you need money quick or need a large amount of money a home equity line can provide that if there is available funds on the line. By refinancing you may lower your payments but you may also loose that security. Alternately if there is available equity in your home you may be able to refinance that secant mortgage and add another line of credit that has a zero balance. This allows you to lower your current payment while maintaining the security of available funds

How do you figure out what your blended interest rate is? For example, if you currently have an 80/20 loan, with interest rates of 6.625% and 9.875% respectively; You take the first rate of 6.625 times 80% and come up with 5.3%. You then take your second loan, I.E. 9.875% and multiply it by 20% and arrive at 1.975%. Add the two together and you have your blended rate, 7.275%. If you can refinance with a single loan for a lower interest rate, it may be a good idea.

An experienced mortgage planner will be able to help you evaluate refinancing a second mortgage. Important things he should ask you would include:1) when does your draw period end (for lines of credit)? At the end of the draw period, your loan will convert to a fixed rate second mortgage and you lose the flexibility of being able to draw against the equity for emergencies.2) how does the margin on the new loan compare to the margin on the old loan? If your home has benefited from significant appreciation, your total loan to value may be low enough to get a lower margin which will help offset the higher indexes of today’s market.3) How are you utilizing your second mortgage? Paying off your higher rate credit card balances to get out from under the interest or floating a small business are common considerations FOR a second mortgage, but should not become routine.

There are other factors to take into consideration to such as how long you intend to own the property. If you are going to sell soon then you might want to stick it out. The only way to truly know is to look at all factors and plug this information into a financial calculator or mortgage calculators. If you are inexperienced in finances then consult you mortgage broker and ask him to run some calculations for you.

A large part of the decision on if to refinance your second mortgage will be based on your first mortgage. If you have a low rate first mortgage you may not want to refinance them together. Instead you may choose to replace your current second mortgage with a home equity line.

Certain areas of the country may have added closing costs, but these are the general types of closing costs you might see at closing: Attorneys or escrow fees Property taxes Pre-Paid Interest Loan Origination fee Recording fees First premium of mortgage Insurance Title Insurance Loan discount points First payment to escrow account for future real estate taxes and insurance Paid receipt for homeowners insurance policy Underwriting fee Tax service fee Broker fee Appraisal Fee

Always take your Good Faith Estimate with you to compare to the fee’s on the final HUD statement. You want to make sure that there were no extra added fee’s.

Recording Fees are the costs to record any documents that needed to be recorded at the county clerk’s office. The most likely documents that are recorded are the mortgage agreement, the note, and the deed. Recording is often done by the title company.

The Settlement document containing the final closing costs or HUD may also be referred to as the HUD-1 or HUD-1A

Closing costs are fees associated with any real estate loan transaction. Federal law requires the lender to disclose all reasonable fees at the origination of the loan on a ‘good faith estimate’ within 3 days of application. All actual closing costs are then again disclosed on the closing documents , commonly called the HUD .

Property taxes may be credited to you if they are paid in the back or you may have to pay the property taxes if they are prepaid in that particular state.

Prepaid interest is the interest per day that the lender charges for using the money. For example if you close on the 10th of the month you will pay interest for approximately 20 days (in a 30 day month) for using their money for 20 days then on the first of the following month your interest will start to accrue daily for the full month. The purpose is so that when you make your first mortgage payment you are only paying the 30 days worth of interest and some to the principal compared to paying for 50 days worth of interest if you were not to pay the prepaid interest.

Mortgage rates are all based on risk. The lower of a risk the loan is the lower the rate will be. Second mortgages are riskier loans. In the unfortunate event of a foreclosure the second mortgage holder gets paid second, not first. If threes not enough money to payoff the second mortgage often they take a loss. Since they are higher risk loans to investors the carry higher rates of return (so investors will purchase them).

A mortgage is considered a lien on your property. A first mortgage is in the first lien position and is the least amount of risk because they are the first to get paid should the borrower default and the home be sold through sheriff’s auction or through some other type of sale. A second mortgage is in the second lien position and is at a considerably higher risk than the first so a 2nd mortgage usually has more strict lending guidelines and credit requirements and will also charge a higher interest rate to make up the difference of this greater risk. If you also had a third lien on your property, they would have the greatest risk and even much worse terms than the first and 2nd liens.

If a homeowner files for BK the second mortgage is not guaranteed to be paid off. So the lender who makes a loan in the form of a second mortgage vs. a first mortgage assumes a higher risk. The lender offsets that risk by charging a higher rate.

Most second mortgages are also held in the lenders own loan portfolio rather than being sold to Fannie Mae, etc. Given that, there is considerable variation in rates, terms, qualification criteria, etc. from lender to lender.

When you take out a 100% one loan you will pay for private mortgage insurance (PMI). When a loan is sold on the secondary market to Fannie Mae or Freddie Mac they will only insure 80% of the value of the home. This insurance covers the other 20% of your loan in the event that you don’t’ pay and the property goes to foreclosure. Second mortgages, when used on an 80/20 combo loan program are self insured and for this reason carry a higher rate. Meaning you don’t have to carry PMI.

Rates on second mortgages will always be higher because the risk to the lender is higher. The rates will vary as with a first mortgage, depending on your credit worthiness, ability to pay and combined loan to value ratio. Combined loan to value ratio is the combination of the first and second mortgage compared to the sale value of your home. The lower the ratio is, the better rate you will get.

Editors Note: Due to the mortgage and credit crunchy, zero down home loans are no longer available. If you’re in need Denver Home Mortgage, we can discuss your mortgage situation.]

Zero down mortgage financing is available to many people. It is very possible for a large number of consumers to qualify for a home purchase without putting any money down. This has become a very competitive market for lenders competing for this business and the number of homeowners who obtain loans with no money down is growing each year.

It is important to realize that while it may be the only way a borrower can purchase a home, a zero down mortgage does carry a higher interest rate. Ultimately the borrower’s goal should be to refinance when there is enough equity to achieve an 80% Loan to Value (LTV).

One option for high credit score borrowers who have minimal disposable cash is to use a 103% loan. This loan allows you to borrow up to 3% in addition to the purchase price to help with closing costs. Ask your preferred mortgage professional if you qualify for a 103 LTV program.

Some conforming zero down programs do require you to contribute at least $500 to the purchase. Your earnest money counts as money towards purchase. You may also be required to pay your hazard insurance out of closing so that will be another out of pocket cost. Ask your mortgage broker for details on the programs they offer.

The most common way mortgage brokers structure “Zero Down” financing is to break the loan amount into a first and a second mortgage, with the first mortgage consisting of 80% of the loan amount needed and the second mortgage being 20%.

Zero down mortgages are a great tool to use, even if you have saved up for a down payment. By choosing the zero down mortgage, your down payment money can now be used for closing costs associated with the loan, moving expenses, new furniture, or any other expenses that you may have when you move into your new home.

If you cannot afford a down payment for your home, there are many down payment assistance programs and grants that may be able to help you purchase your new home. Often these programs are limited to first time home buyers or those with low income. However, there are often no limitations. Call me at and I may be able to find a program that will work for you.

Obtaining a true zero down mortgage is when you will not have to come to closing with any funds of your own. In order to achieve this you will need to either have a no closing cost mortgage which can get expensive, or you can have the sellers pay closing costs. Traditional conforming lenders will generally let the sellers pay up to 3% of your closing costs, while most Alt A and subprime lenders will allow up to 6% in closing costs paid by the seller.

Often times zero down payment programs are available to first time homebuyers. If you need a stated income program you may be able to obtain a stated zero down program with an Alt A or subprime lender.

In 2005, 43% of first time home buyers used zero down programs. You may qualify for one of these programs. Call me now!

Editors Note: Due to the mortgage and credit crunch, many First Time Homebuyer Programs may no longer be available. If you’re in need of a Denver Colorado mortgage, contact us to discuss your mortgage options.

Today, there are many first time homebuyer programs to choose from. Here’s a sample of what’s available:

• FHA – often the best choice in first time home buyer programs. Requires 3% down and upfront mortgage insurance.
• Neighborhood Champions – allows 97% and 100% financing for Teachers, Firefighters, Policemen, and Medical Workers.
• Credit Flex – allows 97% and 100% financing on 7 year ARMs and 30 year FRMs.
• Fannie Mae Flex 97% – allows 97% on 7 year ARMs and 30 year FRMs.
• Fannie Mae Flex 100% – allows 100% on 7 year ARMs and 30 year FRMs.
• Freddie Mac 97% – allows 97% on a 30 year FRM.
• Freddie Mac 100% – allows 100% on a 30 year FRM.
• Nehemiah Foundation Program – FHA no down payment program.
• Nehemiah Conventional Program – conventional no down payment program.
• VA – military veteran loan that allows 100% financing. Requires a VA Funding Fee.
• 80/20 – no money down combination program. Eliminates mortgage insurance with 80% First mortgage, 20% Second Mortgage.
• 80/15 – eliminates mortgage insurance with 80% First mortgage, 15% Second Mortgage. Requires 5% down payment.
• 80/10 – eliminates mortgage insurance with 80% First mortgage, 10% Second Mortgage. Requires 10% down payment.
• 103% – allows 3% of the purchase price to be rolled into the loan.
• 107% – allows 7% of the purchase price to be rolled into the loan.