If you own multiple properties, such as your primary home and a vacation home, you may consider combining the individual mortgages into one mortgage. Although this move doesn’t work for everyone, it may benefit certain mortgagors. And if you’re a real-estate investor who is considering the purchase of multiple properties, a blanket mortgage that covers all your loans may be the move for you. In either case, working with a lender who has expertise in combining mortgages is a good starting point.
TL;DR (Too Long; Didn't Read)
You can combine mortgages on multiple properties by refinancing one property and using the equity to pay off another mortgage or by getting a blanket mortgage, which is an aggregate loan that covers more than one property at a time.
Mortgage Refinance Option
If you have more than one property, each secured by a mortgage with different terms, you may be able to pay off one mortgage by refinancing another property and putting its equity to work for you.
Here’s an example of how it works: Property A is valued at $200,000, and the payoff is $50,000; your equity is $150,000. Property B is valued at $150,000, and the payoff is $75,000. If you get a cash-out refinance loan for Property A, depending on your loan-to-value ratio (LTV), you may qualify for enough cash back from your refinance to pay off the mortgage on Property B. With $150,000 equity in Property A, you could tap into $75,000 of that equity, add that to the payoff amount of $75,000 and get a new mortgage for Property A of $150,000 with $75,000 cash back to pay off Property B.
Because a refinance is an entirely new mortgage, you’ll have to qualify for the loan and pay closing costs. Your new balance for Property A will then be higher than it was before the refinance, but you've essentially combined your two mortgages into one loan and paid off Property B. So even though your new payment for Property A will be higher than it was before the refinance, and the term may be longer, your monthly payments may be less than your two combined original payments.
Blanket Mortgage Option
If you’re a real estate investor, you may want to consolidate mortgages on multiple properties instead of taking out individual loans for each property. By using a blanket mortgage, the aggregate loan may net you a better interest rate and save on closing costs. You may want to make sure that the terms of the blanket mortgage allow you to sell individual properties without having to refinance the entire loan each time you sell a property.
Some lenders will also extend blanket mortgages to individual homeowners who, for example, want to purchase a new home before selling their current home. A purchase contract for a new home often contains a contingency clause that requires the homeowner to sell his current home before being able to close on the new home. Qualifying homeowners can use the equity in their existing home to go toward the financing of the new home in a combined blanket mortgage without having to meet this contingency. When the homeowner sells his old home, its mortgage is paid off, and the new home’s mortgage stays in place.
Finding Lenders for Combined Mortgages
Not all lenders will bundle more than one mortgage into a single loan with a blanket mortgage, and some lenders only offer blanket mortgages to commercial investors instead of individual homeowners. Individual homeowners may have an easier time finding a lender for the cash-out refinance option than the blanket mortgage option. If the multiple mortgages you want to combine are both with the same lender, you may find better terms with this lender. Shop around, however, to make sure you’re getting the best mortgage rates for your specific situation.
- If both of your properties have enough equity to cover the other's mortgage, use your main home's equity to cover your second property. Lenders typically offer better rates on your main residence.
- If the amount of your mortgage is more than 80 percent of the value of your home, you'll probably have to pay for private mortgage insurance, which will spike your monthly payments.
Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.