Do I have to combine my first and second mortgage?

Most Australian homeowners buy a home by taking out a mortgage. Some even take out a second mortgage on the same property if the need arises. There are many reasons why you would take out a second mortgage, such as consolidating debt, renovating or repairing your home, or accessing equity in your property for other purposes.

However, you might find it difficult to manage the repayments of both mortgages. If one of the interest rates on a loan is much higher than what you would like to pay, can combining your first and second mortgages save you interest? It can also be inconvenient to deal with two loans with different repayment dates, so it may be easier to have just one loan.

These are just a few of the reasons you might want to consider consolidating your first and second mortgage.

Can I get a better interest rate?

The main reason you want to refinance the 1st and 2nd mortgage into one loan is that you may be able to get a better interest rate than one, or maybe both, both mortgages. You will need to check the best rate offered by various lenders who are willing to offer you a loan and confirm that you can save money.

You may find that lenders expect you to pay a higher rate than standard home loans. This is because your second mortgage is considered a “cash-out” loan, which means you used the equity in your property to pay for something other than the house itself. Withdrawal loans are considered a higher risk for lenders, so they may charge you a higher interest rate to take over yours.

What Else Should I Look For When Combining Mortgages?

It is much more convenient to deal with just one loan account. You don’t have to keep track of two lenders, two loan balances, and different repayment schedules. But there are also other aspects that you need to think about.

Find out about all the costs associated with your current mortgage and the new one after refinancing; not only the interest charges, but the fees and charges. Consolidating the two mortgages should give you real savings after considering all the costs. Don’t base your decision on a lower monthly repayment amount alone; consider all costs over the life of the loan.

If your credit rating has been affected by late payments or defaults, lenders will likely charge higher interest rates, so now might not be the best time to start debt consolidation. You may want to manage your current loan repayments and improve your credit rating before attempting to combine your first and second mortgage.

Once you decide to refinance your first and second mortgages into one loan, you’ll find it a bit more complex than applying for a regular home loan. It is best to speak with several lenders and compare their terms. Beware of dubious lenders who seem to make it easier but charge high interest and fees. Consulting with a mortgage broker will help you overcome the complexity and help you structure the new arrangement to help you get the best deal.


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About Joan Ferguson

Joan Ferguson

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