The Pros and Cons of Consolidating Your Home Loans
Can money be lent for multiple houses through one mortgage? It can. A number of scenarios could count as multiple properties and one mortgage. Here, we look at a few examples.
One Mortgage for Multiple Properties
Yes, one mortgage can cover two residential properties. In some cases, two houses stand on a single piece of land, with two separate addresses. If you are interested in financing a property like this, check your local bank or credit union and ask whether they work with portfolio loans. The portfolio note is kept in the bank and not resold to another institution.
Two purchase agreements are needed if there are two distinct tax parcels. It’s an excellent idea to consult with a real estate attorney, and to be sure you are titling your new purchases correctly.
If the two homes are in different counties, the mortgage lien for the primary home should be recorded first, with the filing fee paid in that county. Then, the recorded documentation should be filed, with another filing fee paid, in the second county. Each recording of the mortgage lien must specify the distinct street addresses, legal descriptions, and tax parcel ID numbers.
Consolidating Multiple Home Loans
In yet another scenario, one mortgage is created from two by a homeowner with multiple mortgaged properties. The idea is to consolidate debt so only one home is left with a mortgage lien on it.
The owner can accomplish this feat by drawing on equity built up in a primary home, to pay the balance due on a second property, essentially through a cash-out refinance loan. Typically, the new, combined loan is a larger loan than the primary home previously carried, with a higher interest rate, in place of two loans with their own particular rates and terms.
Then, the owner receives a release from the other mortgage. The county records should now reflect the payoff and release. Check to be sure.
What if you’re living in the first home, and treating the second home as a rental property? You will likely be approved for a higher total loan, relative to the property value, on the primary home. To avoid the burden of private mortgage insurance, the loan-to-value ratio should be no higher than 80%.
Pro tip: An accountant can help break down how the new financial arrangement would help with overall debt, while at the same time anticipating the likely tax impacts. For just one example: If an investment property is no longer subject to a mortgage and interest payments, will the government tax more of the income it generates?
The Blanket Mortgage Loan
The blanket mortgage, which bundles several mortgage loans together, is an option for investor-buyers who need to keep track of finances across their real estate holdings. Each property is under the single (“blanket”) set of loan terms. Every property still needs its own title search, appraisal, and insurance. Blanket loans can cover all the properties in a particular state that the buyer wishes to include — but no additional properties can be brought into the fold after closing.
The blanket loan offers several advantages. It enables buyers to apply for just one mortgage. After the properties are successfully purchased, one monthly mortgage payment will cover them all. Equity loans and cash-out refinancing are available to help the owner handle repairs or pursue future deals.
There are a few more aspects to consider. Because it’s treated as a commercial undertaking, the blanket loan is a pricier loan product than a straight residential mortgage. The applicant will need to be sure the higher down payment, closing costs, and interest rate are offset by the ability to have just one, unified closing.
Also, the buyer needs to be clear on the plan to sell any of these properties later. All the properties are tied to the loan, making it tricky to sell or refinance just one of them at a time. Will the lender release them from the mortgage individually? Real estate lawyers may draft these loans with partial release provisions, empowering owners to keep the mortgage intact when selling or refinancing individual properties from the batch.
Here again, if you are interested in a blanket loan, it’s best to check first with an investor-focused local bank or credit union that works with portfolio loans. A mortgage broker near you will have more information on where to look.
Combining a First and Second Mortgage
A second mortgage on a home can take the form of a home equity loan (HEL), which is one-time loan with a fixed rate, or a home equity line of credit (HELOC), which is a credit line with variable rates. If a second loan is attached to your house with comparatively high interest charges, and you want to take advantage of the current low rates, consolidating debts could be a smart financial move. It’s best done at a time when the owner does not plan to take out any other loans, as the new debt arrangement can unsettle the owner’s credit score.
To decide if this is the right move at the right time, examine the closing costs and the total amount on the new loan, and how quickly it will be paid off. Compare your currently projected costs against what you will save over time with the lower rate. And don’t forget how points can weigh in.
- Could investing in points boost your savings? A point is a percentage of interest on your loan principal, paid in advance to your lender to reduce your interest rate. If you keep the house long enough, the points you buy will pay for themselves through that lower interest rate — but the break-even point can take three to ten years to reach. After that, you’ll save on your monthly payments. If you think you might sell or refinance before that time, don’t buy points. Choose the higher interest rate instead.
- What about negative points? When you refinance, you can also sell points to the lender. That increases the loan’s interest rate, while you get a lender’s credit to help cover closing costs.
All things considered, a consolidation of your loans could come out to be more expensive, especially as a new loan resets to the start of a long-term payment schedule. If so, there’s a much simpler option. Chip in some extra money every month toward the principal, so your balances and interest amounts go down as quickly as possible. You should be able to do this right on your mortgage servicer’s website.
Conclusion
Creative mortgage planning is an art, but it mainly comes down to getting the numbers together and making comparisons. Consult with an accountant and an experienced mortgage broker in your area to bring valuable knowledge to bear on these decisions.
If you decide to refinance, it never hurts to get quotes from more than one lender. Check with local banks and credit unions, and your current mortgage specialist. Depending on the type of loan product needed, the well-known refinancing sites — such as AimLoan, Amerisave, Quicken, Rocket, or Zillow — can be good starting places to get quotes. Often, the company you want will match another company’s quotes. As long as you’re going through the process, you’ll want to be sure you get the best available offer!
Just be sure to examine the terms and the timelines — not just the interest rates.
Please note: This article is offered for general knowledge only, and is not to be considered financial advice. The amounts, terms, and circumstances of a particular mortgage will differ from case to case, and so will the notable factors in price comparisons, titling decisions, and numerous other considerations. For case-specific questions, contact a licensed, local professional in the relevant area of expertise.
Photo credits: Magda Ehlers, via Pexels; and Charles Deluvio, via Unsplash.