<p>I am in the process of refinancing my mortgage to take advantage of a lower interest rate and to consolidate some bills. They want me to pay off my second mortgage with the cash out. My issue is that I have less than 5 years left on the second mortgage. I want to pay off my student loans from hell. They never seem to go down because I am in an extended repayment plan. The mortgage company says I must pay off the second mortgage. Not sure what I should do. Can they dictate what you do with your cash out?</p>
<p>They can certainly refuse to refi if you don’t pay off the second mortgage. Because if you don’t, that increases the total amount of debt against the value of your house (they give you more than the first mortgage amount you have now, and you still keep the 2nd mortgage as well). They don’t want the loan to value ratio to go up.</p>
<p>They sure can dictate this. They do not want you to have debt against that house that is not part of their financing. Do you have enough equity to take out a new mortgage that includes enough to pay both the loans and the second mortgage off? If not, you have your answer as to why the mortgage company wants you to pay off the second mortgage. If YES, then why not refi, and pay off both. You could use the money from your second mortgage payment to help pay down your new mortgage…ditto the student loan payment money. Send extra towards your new mortgage principle every month with the money from those other payments.</p>
<p>lol…I didn’t even think of the loan value against the house. I’m only taking a new loan to 60% of the value of the house, so the small second mortgage I have doesn’t impact it too much. I guess it doesn’t matter, I just really wanted my student loans to finally be zero. I’m getting a good rate and all will be paid off before I’m 65 which is what I wanted so I guess it will be okay.</p>
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<p>What did they say when you asked them why? </p>
<p>Since you have quite a bit of equity even with the 2nd, the only other reason they’d want you to pay it of is if you didn’t qualify with the new 1st mortgage plus existing 2nd (i.e., one new loan has overall lower payments than 1 new loan plus existing 2nd) or if they think your 2nd mortgage lender will be hard to get a subordination agreement from (that’s when you leave a 2nd mortgage in place and the lender agrees to subordinate to the new first lender).</p>
<p>Do you have your 2nd with the same company? If not, what happens is that 2nd becomes the primary and your bank can’t write the loan if they are in the second position. You need to get the lender of your 2nd to subordinate to the 2nd position, which is where they are now, if you don’t want to pay it off. Some are good about that, some won’t do that at all.</p>
<p>What is the rate on the existing 2nd mortgage? You could refinance, pay off your 2nd as required by the bank, and then take out a new 2nd mortgage, possibly at a lower rate than your existing 2nd mortgage. Then use these loan proceeds to pay off your (presumably) higher rate student loans.</p>
<p>We have refinanced a number of houses that we’ve owned so many times to take advantage of lower rates. And we have always been forced to pay off and shut the HELOC. Then we just open another HELOC, usually at a lower rate. The lenders just don’t want to deal with keeping the HELOC open, they don’t want to go into lower position, it’s an extra hassle, additional fees. I’ve heard it all, and now I just assume it will be closed.</p>
<p>But, if you really have that much equity, I would refi the house and open up a home equity loan from Pentagon Federal. They have an online rate of 1.99% for up to 5 years, up to 80% equity. I’ll bet your student loans from hell, current HELOC and new mortgage don’t touch that!</p>
<p>Yes, your new lender can require you to pay off existing liens when you refinance. Some do and some don’t. Even if they allow you to keep an existing 2nd mortgage when you refi you will need to get your 2nd mortgage lender to execute a subordination agreement, which says that they will remain a 2nd mortgage after the refi (instead of becoming the 1st mortgage when your existing 1st is paid off during the refi). When we refinanced last year our 2nd mortgage holder (our credit union) was going to charge us $300 for executing the subordination agreement. Since we had a zero balance (it was a HELOC) we closed the line of credit, extinguishing the 2nd mortgage. Then after we refinanced we opened a new HELOC.</p>
<p>My second mortgage is from a company that is notoriously difficult to deal with and tends to give problems with staying in the second position which is likely why they just want tpay t off. I like the idea of the Penn Federal loan after the refi to pay off the rest of my student loans. I will look into that. I did not get the finance gene when it was being handed out, so I have a difficult time figuring this stuff out. lol</p>
<p>dkitty, the website is penfed.org. Pentagon Federal is the largest credit union in the US, and loans out a lot of money for very good rates.</p>
<p>And depending upon how much money you need, they might have even a better deal going on right now. It is 1.49% for up to 60 months for a used car loan. No fees at all. Now you might think, well, I don’t need a car, or all my cars are paid off. But here is what they did for us. We got a 17K loan on a paid off Prius, and a 14K loan on a paid off Versa. They just sent us the checks and we sent them the titles, they will send the titles back when the loans are paid. It is considered a refinance of a vehicle, but they are sending the money to the owner of the vehicle…you. If you call them and ask questions, they are great. I really like getting cheap loans!</p>
<p>dkitty - sounds like you are far along in the process, but it you hit a snag, we found this group (which services NJ) had amazing rates - we’ve done a few re-fi’s through them and out last primary mortgage. I believe they are supported by local NJ banks.</p>
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<p>They want the 2nd mortgage paid so there is no lender in front of them.</p>