When you take out mortgages, the lender secures liens on the homes by filing the mortgage documents at the county courthouse. You cannot combine the loans into one loan tied to two properties. However, you can combine the loans by refinancing one of the homes and extracting sufficient cash to pay off the mortgage owed on your other home.
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Lenders classify any refinance that involves a borrower paying off anything other than fixed liens on a single property as a cash-out refinance. You can borrow up to 80 per cent of the value of a home with a conventional cash-out refinance loan. Therefore, you can only combine two loans secured by different properties if the total balance you owe, including any prepayment penalties, amounts to less than 80 per cent of the value of either of the homes.
Lenders offer the lowest mortgage rates for first lien loans secured by primary residences. If you transfer the debt owed on your nonprimary home into a single loan secured by your primary home, you can normally lower your overall interest payments. Interest rates on vacation homes and rental homes are often 1 per cent or more higher than on primary residences. However, if you already have a very low rate on the mortgage on your primary home, you should only refinance if you can get a comparably low rate and that would provide you with an overall savings.
The Federal Housing Administration (FHA) insures refinance loans with higher loan-to-value limits that conventional loans. You can borrow up to 85 per cent of your home's value with an FHA cash-out refinance loan and use some of the proceeds to pay off your other mortgage. However, if you take out an FHA loan, you must pay for FHA mortgage insurance. This insurance protects the lender against borrower default on loans secured by homes in which a homeowner has less than 20 per cent equity.
Lenders do not allow consumers to combine loans secured by different properties into one loan tied to both properties; but in some instances, businesses are able to borrow multiproperty loans. Some large commercial loans are secured by a variety of different collateral, including real estate and equipment. If the borrower defaults on the loan, the lender can seize some or all of the collateral. Banks are less flexible with the terms of consumer loans because banks have to lend to all qualified applicants equally, and complex loans would require more underwriting and expose the banks to more legal issues. Business loans are less common than consumer loans, and banks are, therefore, more willing to cater to businesses' needs.
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