How to refinance a second mortgage in 6 steps

Your options to refinance a second mortgage largely depend on your current mortgage type. The right refinance strategy can save you thousands in interest and give you more financial flexibility.

Homeowners can refinance two main types of second mortgages: home equity loans and home equity lines of credit (HELOCs). Each type comes with its own set of benefits and things to think about.

Understanding second mortgages

A second mortgage is a type of loan that lets you borrow against the equity you’ve built in your home—without touching your original mortgage. Homeowners often use it to fund big expenses like renovations, tuition, or debt consolidation. It sits “second” in line behind your primary mortgage, which means it typically comes with a higher interest rate and shorter term. But just like your first mortgage, it doesn’t have to be set in stone.

If your financial picture has improved—or if market rates have dropped—you may be able to refinance your second mortgage to get a lower rate, reduce your monthly payments, or even fold it into a new first mortgage. This could mean real savings and a more manageable monthly budget. At Better, we’re here to help you explore those options, without the jargon or the runaround. Just smart, straightforward lending that works for your life.

Home equity loan refinancing

Home equity loans give you a lump sum with fixed interest rates and steady monthly payments for a set period. The refinancing process replaces your existing loan with a new one that might have better terms.

Here are some ways to refinance your home equity loan:

— Rate-and-term refinance: You can get a lower interest rate or change the loan term without borrowing extra money
— Cash-out refinance: This lets you borrow more than what you owe and take the difference in cash (learn more about costs involved)
— Consolidation refinance: This combines your first and second mortgages into one loan to simplify your payments

HELOC refinancing

Home equity lines of credit (HELOCs) work as revolving credit lines with variable interest rates. You might refinance a home equity line of credit (HELOC) by:

— Switching to a fixed-rate home equity loan for steady payments
— Getting a new HELOC with better terms after your draw period ends
— Using a no-closing cost refinance to cut down upfront costs

Piggyback loan refinancing

Piggyback loans, which are often structured as 80/10/10 loans, help homeowners avoid private mortgage insurance during their original home purchase. You can refinance these second mortgages on their own or roll them into your primary mortgage refinance.

The refinance process timeline includes preparing for a refinance appraisal. This appraisal determines your home's current value and affects your loan terms.

Several factors should shape your refinancing decision:

— How much your credit score has improved since your original loan
— Your home's current equity position
— Whether you need extra funds
— Your preference between predictable payments and potentially lower variable rates

The process stays similar for a second home loan refinance, but you might face extra qualification requirements and slightly higher interest rates because lenders see these loans as riskier.

Can you refinance a second mortgage?

You can definitely refinance a second mortgage. Your changing financial situation might make a second mortgage refinance a great way to get benefits. Several key factors determine if you can qualify: your credit score, debt-to-income (DTI) ratio, and total loan-to-value (LTV) ratio.

Most homeowners choose to refinance their second mortgage for these compelling reasons:

— Lower interest rates - Second mortgages typically carry higher rates than first mortgages because lenders take on greater risk as the secondary lien holder. You can often secure better terms after building additional equity or improving your credit score.
— Lower interest rates - Second mortgages typically carry higher rates than first mortgages because lenders take on greater risk as the secondary lien holder. You can often secure better terms after building additional equity or improving your credit score.
— Reduced monthly payments - Extending your loan period or securing a lower interest rate can decrease your payment obligations.
— Fixed-rate stability - Converting from an adjustable-rate second mortgage to a fixed-rate loan provides payment predictability and protection from market fluctuations.
— Consolidation convenience - Some borrowers use a cash-out refinance to combine first and second mortgages into one loan, simplifying finances with a single payment.
— Improved HELOC terms - Replacing a high-rate second mortgage that was part of a piggyback loan arrangement with more favorable conditions.

Your credit score improvements since taking out your second mortgage can help lenders see you as a lower risk. This works especially when you have negative items falling off your credit report or you've built a stronger payment history.

Before starting a refinance appraisal, remember that cash out refinance options often cost more. This happens because Fannie Mae and Freddie Mac see cash out refinances as riskier than standard refinances.

Refinancing brings many advantages, but costs usually run between 2-5% of the total mortgage amount. It's important to make sure your savings will offset the cost to refinance. A no-closing cost refinance might work better if you're concerned about upfront expenses. Some lenders, like Better, allow you to roll closing costs into the loan, making it so that there are little to no upfront costs to the borrower.

People with a second home loan have similar refinancing options. Lenders might ask for stricter requirements compared to primary homes.

Your individual financial situation and goals will determine if refinancing your second mortgage makes sense. Many homeowners have found substantial financial benefits by refinancing their second mortgages with proper planning and timing.

Drawbacks and benefits of refinancing a second mortgage

Homeowners can find great opportunities and face some challenges when they refinance their second mortgage. You need a full picture to decide if this financial move makes sense for you.

Pros of refinancing a second mortgage

Lower interest rates are one of the best benefits you'll get from refinancing. Second mortgages usually come with higher rates than primary ones. You can save a lot of money over time by refinancing after your credit score improves or you build more equity in your home.

Simplified finances happen when you combine your loans. You'll only need to track one interest rate, one monthly payment, and one balance after merging your primary mortgage and secondary mortgage into a single account.

Adjusted monthly payments give you more financial freedom. Your payments could drop if you extend your loan term or get a better interest rate. This creates more room in your monthly budget.

Fixed interest rate security keeps you safe from market changes. You won't have to worry about future payment amounts when you switch from a variable-rate second mortgage to a fixed-rate loan. This protection becomes really valuable when rates start climbing.

Cons of refinancing a second mortgage

Refinance fees are a big deal to think about. Lenders charge 2% to 5% of the total mortgage amount for closing costs. A $100,000 loan means paying $2,000-$5,000 upfront. The refinance cost might not be worth it if your interest savings don't exceed these fees.

With our Better Forever program, you can save on origination fees on all future purchases and refinances, which can cut down these lender fees significantly. 

Credit score impacts show up whenever you refinance. The refinance process timeline includes hard inquiries, new accounts, and closed tradelines that temporarily affect your score.

Home selling restrictions come with second mortgages. You often can't sell your property if you still have a second mortgage balance. This matters a lot if you might need to move.

Appraisal requirements make the process more complex. You'll need a refinance appraisal for most refinances. This shows your home's current value and affects what terms you can get.

The best way to decide if refinancing works for you is to weigh these pros and cons carefully. You might want to look into no-closing cost refinance options or second home loan alternatives too.

Steps to refinance a second mortgage

Getting better terms on your second mortgage needs a smart approach that boosts your approval odds and keeps costs down. Here's a guide to help you make this big financial move.

1. Decide if refinancing your second mortgage makes sense

You should first figure out if refinancing will save you money. Lenders usually charge about 3% of the total mortgage as refinancing fees. A $100,000 loan means you'll pay roughly $3,000 upfront. The interest savings need to beat these fees, or refinancing might not make sense. A refinance cost calculator can help you find your break-even point.

2. Get pre-approved to refinance your second mortgage

Take a good look at your credit profile. Pull free reports from all but one of these major bureaus and fix any errors right away. Your credit score drives the terms you'll get. You should also review your overall financial health by looking at:

— Income stability
— Debt-to-income (DTI) ratio
— Total debt burden

You can skip these steps and get a custom rate quote from Better with a soft credit check (no impact to your credit score).

3. Compare lenders and second mortgage refinance options

Your current lender might be a great starting point since they know your loan history and might offer good terms to keep your business. Research three to five more lenders to see who has the best rates and terms. This homework helps you find the right deal for your situation.

4. Lock your rate and upload required documents

After picking your lender, collect everything you need:

— Proof of income (W-2s, pay stubs, tax returns)
— Asset verification
— Second mortgage statements
— First mortgage information

Send in your application and be ready to answer questions or provide more documents. The refinance process timeline shows how long each step usually takes.

5. Prepare for home appraisal and final loan review

Second-mortgage lenders care a lot about your loan-to-value (LTV) ratio because they're taking on more risk as secondary lienholders. Knowing your home's equity position is vital before moving forward. The refinance appraisal guide can help you get your property ready for the best valuation.

Feature	Importance	Why It Matters
Clean, well-maintained property	High	Creates positive impression
Recent improvements documented	Medium	Supports higher valuation
Comparable sales information	High	Helps justify your home's value
Clear access to all areas	Medium	Allows thorough assessment

6. Close on your new loan and pay off your existing second mortgage

Keep paying your current second mortgage until the new loan kicks in. You'll get a closing statement showing your new interest rate, payment schedule, and terms after approval. Many homeowners look into no-closing cost refinance options to cut down on upfront costs.

Conclusion

Refinancing a second mortgage can be a great way to get better terms and more financial flexibility for homeowners. This piece explores several refinancing options for home equity loans, home equity lines of credit (HELOCs), and piggyback loans - each with its own benefits. Our six-step process gives you a clear path from the first assessment to closing. Your current financial status, credit score, equity level, and long-term goals will help you decide if refinancing makes sense for your situation.

The choice to refinance needs a good look at both pros and cons. Lower interest rates and simpler payments are definitely appealing, but these benefits should be worth the cost to refinance. Your specific situation matters - how long you'll stay in your home and your current interest rate will affect your decision. A full refinance appraisal preparation and having all your documents ready can make things move faster.

Smart second mortgage refinancing needs good research and rate shopping. The right strategy could save you thousands on your loan while giving you better financial stability. Look into all options, including no-closing cost refinance choices and second home loan solutions that fit your needs. Market conditions change often and affect available rates and terms. A close eye on the refinance process timeline helps you get the best terms for your financial future.