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Combining Mortgages: How and Why

Owning two or more properties can make taking care of your finances complicated. And whenever you have the opportunity to consolidate debt, it’s worth looking into. Should you combine your mortgage loans? Keep reading for more information.

How to combine your mortgages

First of all, let’s talk about how you would go about combining your mortgages. You’ll want to look into a cash-out refinance. Note that to do this, one of the mortgages must have significant equity, because the equity of one property will be used to finance the other. At the end of the process, the refinance will leave one mortgage paid off and the other loan amount much larger. To put it simply: you’ll be paying off one loan with a home equity line of credit (HELOC) taken out on the other loan.

If you decide that it makes financial sense for you to combine your mortgages, it’s time to contact your lender. It will be especially beneficial to you if the same lender funded your mortgages, but having multiple lenders isn’t a non-starter. In either case, most lenders will waive several fees for repeat customers.

The process will then look very much like the original purchase did. All of the usual documentation will be required, and you’ll have to qualify for this loan like you did with the others. Your lender should be able to help you gauge how much to take out and help you with determining which property has more equity.

 

Should you combine your mortgage loans?

Even though consolidating debt is usually a financially sound decision, you’ll want to consider this choice carefully. This move depends on the amount of each loan and how long you’ve had your mortgages. Remember that you’ll be taking out most of the equity in one property, and less equity means a higher loan-to-value ratio (LTV). Your LTV is important because if it’s over 80%, you’ll be required to pay mortgage insurance. Also, your new loan will most likely cross the threshold into the “jumbo loan” category, which will automatically raise the interest rate. However, the financial gains are usually much more than the losses.

Many people believe that when combining two mortgages, you can default on both properties. But this isn’t the case. Because you’re paying off one of the loans, that property no longer exists as a debt. If you default, you only default on one loan, though it is a much larger loan.

 

In sum, be sure to do the math or talk to your lender before you make the decision to consolidate your mortgages. That way you can be sure you’re making the best decision for your financial future.

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