Underwater with Two Mortgages? Here are 5 Ways to Refinance

Having a second mortgage or home equity line can make refinancing an underwater mortgage nearly impossible, but one of these five strategies might bail out your refinance.

The mortgage market is awash in programs to help underwater home owners refinance, but if you have a second mortgage or a home equity line that’s causing you to owe more than your home is worth, you could be left high and dry.

If the first and second mortgages on your home put together exceed its value, you’re underwater.

To understand why being underwater on your two mortgages is a problem, you need to know how first and second mortgages work:

  • When you get your first mortgage, that lender is first in line to get paid off if you don’t pay your mortgage and your home is sold via foreclosure.
  • When you then get a home equity line or second mortgage, it’s called a second mortgage because that lender is second in line to get paid.
  • When you refinance your first mortgage, you actually pay off the original first mortgage. Unless you pay off the second mortgage, too, your second mortgage legally and automatically moves into place as your first mortgage.
  • No lender will give you a low, first mortgage interest rate unless it can be first in line for the foreclosure sale proceeds if you don’t make your payments. If your second mortgage has moved into first position, any new loan would automatically be behind it in line.

Here are five options that can help you refinance your first mortgage anyway:

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