Subordination

• The easiest way to obtain a new first-position loan with a second mortgage is to subordinate the existing second mortgage. The new lender requires the second mortgage company to provide a resubordination agreement, which documents that the second mortgage is allowing the new loan into first position. Without this document, a second mortgage would automatically move into first position when the existing first mortgage was paid off.
  
  

Loan-to-Value

• The new first mortgage company will ask for a copy of the existing second mortgage note. They will verify three different calculations meet their guidelines. The loan-to-value ratio is the new first position loan's percentage of the home's value. The combined loan-to-value is the sum of the new first loan's balance and the current balance of the second mortgage compared to the home's value. If the second loan is a home equity line of credit, a third calculation must be made. Since HELOCs can be used repeatedly, the entire credit line is added to the new first-lien mortgage balance and compared to the home's value to create a home equity combined loan-to-value, or HCLTV. All three of these calculations must meet the new first-position lender's requirements if the loan is to be approved.
  
  

Combining a First and Second Mortgage

• Many lenders allow you to refinance both the first and second mortgage into one loan. They usually require the second mortgage to be closed once it is paid off. The circumstances around when you opened your second mortgage determine how the new first mortgage is defined. If the second mortgage is used only to purchase the home, and for nothing else, then it can be combined with the first mortgage in a rate-and-term refinance.
  
  

Opening a New Second Mortgage

• If your new lender requires you to pay off and close your second mortgage as a condition of closing, there's nothing that says you cannot open a new second mortgage after your first mortgage closes. Your new first mortgage lender can only tell you what type, if any, your second mortgage can be when you close. The first mortgage lender cannot forbid you from obtaining a new second mortgage after you close on your new first mortgage.