Yes, you can refinance a second mortgage. The right approach depends on what you want to change and whether you also want to keep your existing first mortgage.
If your second mortgage is a home equity loan or home equity line of credit (HELOC), you may be able to replace it with another home equity product. You can also refinance both your first and second mortgages into a single new mortgage, or refinance only your first mortgage and ask the second-mortgage lender to remain in second-lien position.
Those choices can produce very different rates, payments and closing costs. If your first mortgage already has favorable terms, replacing only the second mortgage may let you keep those terms intact.
Second Mortgage Refinance Basics
| Option |
What Happens |
Potential Use |
| Refinance only the second mortgage |
Your first mortgage stays in place and a new loan replaces the existing second mortgage. |
Change the rate, payment, term or loan structure without touching the first mortgage. |
| Combine both mortgages |
A new mortgage pays off both the first and second mortgages. |
Move from two payments to one or restructure the total mortgage debt. |
| Refinance the first and keep the second |
The second mortgage remains open and generally must agree to stay behind the new first mortgage. |
Change the first mortgage without paying off an existing HELOC or home equity loan. |
A second mortgage is a loan secured by your home that sits behind another mortgage in lien priority. The CFPB identifies home equity loans and HELOCs as common second mortgages when another mortgage is already secured by the property.
How Do You Refinance a Second Mortgage?
The simplest version is replacing your current second mortgage with another second mortgage.
For example, suppose you have a first mortgage with a $300,000 balance and a $50,000 HELOC balance. If you want to keep your first mortgage, you could apply for a new home equity loan or HELOC large enough to pay off the existing $50,000 balance.
Your first mortgage would remain unchanged. The new loan would take the place of the existing second mortgage and generally remain in junior-lien position.
The lender will typically evaluate your income, debts, credit, property value and available equity before approving the replacement loan.
Ways to Refinance a Second Mortgage
Replace a HELOC With a New HELOC
If your current second mortgage is a HELOC, you may be able to replace it with a new HELOC.
This can give you a new draw period, a different credit limit or different rate terms. Approval isn't automatic, and the new lender will underwrite the loan based on your current financial situation and home equity.
A new HELOC is still generally revolving credit, so the outstanding balance and required payment can change over time. HELOCs also commonly have variable rates.
The HELOC refinancing process covers the options specific to replacing an existing line of credit.
Replace a HELOC With a Home Equity Loan
You can also use a home equity loan to pay off a HELOC balance.
A home equity loan generally gives you a fixed amount and scheduled installment payments. That can make sense if you're finished borrowing and want to turn a revolving balance into a more predictable repayment schedule.
HELOCs and home equity loans are both secured by your property, but their borrowing structures differ. A HELOC vs. home equity loan comparison can help you compare revolving credit with a lump-sum loan.
Replace a Home Equity Loan With Another Home Equity Loan
A home equity loan can also be refinanced with a new home equity loan.
The new loan pays off the existing balance and creates a new repayment schedule. Your new rate, term, payment and closing costs depend on the financing available when you refinance.
A lower monthly payment doesn't automatically mean lower total borrowing costs. Extending a balance over a longer repayment term can reduce the payment while increasing the amount of interest paid over time.
Can You Combine a First and Second Mortgage?
Potentially. Instead of refinancing the second mortgage separately, you may be able to use one new first mortgage to pay off both existing loans.
Suppose you owe:
- $300,000 on your first mortgage
- $50,000 on your second mortgage
A new mortgage large enough to cover both balances could replace the two loans with one new mortgage, subject to your available equity, loan-program rules and qualification.
Whether a transaction is treated as a cash-out refinance or another type of refinance depends on the loan program and the history and purpose of the subordinate financing. Don't assume that simply paying off a second mortgage automatically puts every refinance into the same category.
Combining the balances can simplify repayment, but it also means replacing your existing first mortgage. If that first mortgage has a particularly favorable interest rate, refinancing the entire balance could cost more than replacing the second mortgage alone.
Can You Refinance Your First Mortgage and Keep the Second?
Yes, in some cases. This is where lien priority becomes important.
Your existing first mortgage has priority over the second mortgage. When you refinance the first mortgage, that original first lien is paid off and replaced by a new mortgage.
The second-mortgage lender may need to agree that its lien will continue to sit behind the new first mortgage. This process is commonly called subordination or resubordination.
The CFPB says a HELOC lender may need to approve a refinance of your first mortgage. If the HELOC lender refuses, you may have to pay off the HELOC before the refinance can close.
Fannie Mae describes a resubordinated lien as an existing subordinate lien that isn't paid off in a refinance and instead remains behind the new first mortgage. Fannie Mae and Freddie Mac also publish a standardized refinance subordination agreement for this purpose.
What Do You Need to Qualify for a Second Mortgage Refinance?
Requirements vary by loan product and lender, but the lender will generally look at whether your finances and home value support the new loan.
Enough Home Equity
Your home equity is the difference between the home's value and the debt secured by it.
For a second mortgage, lenders often look at combined loan-to-value, or CLTV. CLTV compares the balances of multiple loans secured by your home with the property's value.
For example, if your home is worth $500,000 and you have a $300,000 first mortgage plus a $50,000 second mortgage:
($300,000 + $50,000) ÷ $500,000 = 70% CLTV
You can use our CLTV calculator to run the calculation using your own mortgage balances and home value.
Income and Debt-to-Income Ratio
The lender will generally review your documented income and recurring debt obligations to determine whether you can afford the new payment.
Your debt-to-income ratio compares qualifying monthly debt payments with gross monthly income. The payment on the first mortgage and the proposed second mortgage can both factor into that calculation.
Credit
Your credit history and score can affect eligibility and pricing. The lender may also review your mortgage payment history, particularly because the new debt will again be secured by your home.
Property Value
The lender needs a supportable value for the property to determine how much equity is available. Depending on the transaction and lender, that could involve an appraisal or another acceptable valuation method.
When Could Refinancing a Second Mortgage Make Sense?
Replacing a second mortgage can be worth considering when the new loan improves something meaningful about the existing debt.
For a HELOC, that could mean moving from a variable-rate balance to a fixed-rate home equity loan. It could also mean refinancing before the end of the HELOC draw period if the scheduled repayment terms would create a payment that doesn't fit your budget.
A refinance can also make sense when the new rate and fees produce enough savings over the time you expect to keep the loan.
If your main goal is to combine your first mortgage and HELOC, compare that structure with keeping the loans separate. The HELOC vs. cash-out refinance decision can be especially important when your current first mortgage has a low interest rate.
When Might Refinancing Not Make Sense?
Closing costs can erase the benefit of a modest rate reduction, particularly when the second-mortgage balance is relatively small.
Replacing both mortgages can also be expensive if it means giving up favorable terms on your first mortgage. A lower rate on the second mortgage may not compensate for a higher rate applied to a much larger first-mortgage balance.
Term length matters too. Refinancing a balance into a new, longer loan can lower the monthly payment while keeping you in debt longer.
Finally, remember that a second mortgage is secured by your home. The CFPB warns that failing to repay a home equity loan or HELOC can put the home at risk.
How to Compare Second Mortgage Refinance Options
Start with the problem you're trying to solve. A homeowner seeking a fixed payment may need a different refinance than someone trying to reopen access to revolving credit.
Then compare:
- The new interest rate and whether it is fixed or variable
- The monthly payment
- The remaining balance and new loan amount
- The repayment term
- Closing costs and lender fees
- Whether your first mortgage changes
- The total interest you expect to pay
If you're refinancing both mortgages into one, compare the cost of replacing the entire first-mortgage balance with the cost of refinancing only the smaller second mortgage. That distinction can change the economics of the decision substantially.
The Bottom Line
You can refinance a second mortgage. You may be able to replace a HELOC or home equity loan with another second mortgage, or use a new first mortgage to pay off both your first and second liens.
You can also refinance your first mortgage while leaving the second mortgage in place, but the second-mortgage lender may need to approve a subordination agreement so the new mortgage retains first-lien priority.
Compare the new rate, payment, fees, repayment period and the effect on your existing first mortgage. If the first mortgage already has favorable terms, refinancing only the second mortgage can preserve those terms while still changing how your home equity debt is repaid.
Frequently Asked Questions
Can You Refinance a Home Equity Loan?
Yes. You may be able to replace a home equity loan with a new home equity loan, HELOC or another mortgage structure. Approval depends on your equity, income, debts, credit, property and lender requirements.
Can You Refinance a HELOC?
Yes. An existing HELOC can potentially be replaced with a new HELOC, converted through refinancing into a home equity loan or paid off through a larger mortgage refinance. Each option changes the repayment structure differently.
Can You Refinance a Second Mortgage Without Refinancing the First?
Yes. A new second mortgage can pay off the existing second mortgage while leaving your first mortgage unchanged. This can be useful when you want different terms on the second mortgage but want to preserve your current first-mortgage rate.
Can You Refinance a First Mortgage Without Paying Off the Second?
Potentially. The second-mortgage lender may need to agree to subordinate its lien behind the new first mortgage. The CFPB notes that a HELOC lender can refuse, in which case paying off the HELOC may be necessary to complete the refinance.
Can You Combine a HELOC With Your Mortgage?
Potentially. A new mortgage can sometimes pay off both an existing first mortgage and HELOC. Whether the transaction qualifies and how it is classified depend on the loan program, equity, subordinate-financing history and underwriting requirements.
Do You Need an Appraisal to Refinance a Second Mortgage?
It depends on the lender and transaction. The lender needs a way to determine the property's value and your available equity, but the valuation method can vary.
Is It Better to Refinance a Second Mortgage or Pay It Off?
That depends on the remaining balance, rate, closing costs, available cash and how long you expect to carry the debt. Paying it off avoids taking on a replacement loan, while refinancing can spread repayment over time or change the rate and payment structure.
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