Refinance & second mortgage

I have a 15yr. fixed rate first mortgage at 5.5% that I’ve been paying on for nearly 3 yrs. In May 2004 I took out a 2nd mortgage (home equity loan, not HELOC) at 3.625% for some home improvements. This loan has a 5 yr. prepayment penalty ($900). I am interested in getting more cash out to finish the home improvements that the loan from last year didn’t cover & to do some debt consolidation on my credit cards, etc. Will I have to pay off the 2nd mortgage/home equity loan in order to pay off the first for a cash-out refi? Or can I get away w/ leaving this 2nd alone to avoid increasing the interest rate on this $$ & the prepayment penalty? FYI – PMI is not an issue because there’s plenty of equity in the home.

Thanks in advance for your input-


In this situation, it would be better to set up either a heloc by paying off the 1st, 2nd, and debts by refinancing them into one loan (rates can go as low a 6.5 depending on ltv ) or you would have to get your 2nd mtge company to subordinate to whoever refinances the first mortgage. A subordination agreement is a document signed by the 2nd mtge holder which states that they will remain in 2nd position if you refinance your first mortgage. But, be warned, some banks/lenders WILL NOT subordinate at all or they will make the process very hard.

Keith is right.

Depending on what LTV you will have after the consolidation you will need to have the 2nd mortgage holder subordinate. If the CLTV is low enough you should not have a problem.