For homeowners juggling a primary mortgage and a home equity loan, the idea of simplifying payments through refinancing is increasingly appealing. Especially in a fluctuating interest rate environment like 2025, combining two home loans into a single mortgage can offer benefits such as lower monthly payments, streamlined debt, and potentially better loan terms. But is it possible to combine your mortgage and home equity loan into one? Yes, it is possible under the right conditions, if you mee the lenders requirements and through several available methods.
What Does It Mean to Combine a Mortgage and Home Equity Loan?
Combining your mortgage and home equity loan refers to refinancing both debts into a new single mortgage. This is typically achieved through a cash-out refinance, where the borrower takes out a new loan to pay off both the original mortgage and the outstanding balance of the home equity loan. The new loan replaces the existing two and is repaid under one set of terms.
Why Combine the Two Loans?
There are several motivations for consolidating your mortgage and home equity loan:
- Simplify finances: One monthly payment instead of two
- Lower interest rate: New loan may have a better rate, especially if the home equity loan has a variable rate
- Extend or shorten loan terms: Offers flexibility to change the loan duration
- Cash flow improvement: Potentially reduce monthly payment by spreading out over a new 30-year term
How Can You Combine Them?
1. Cash-Out Refinance
This is the most common option. A cash-out refinance allows you to refinance your existing mortgage for more than what you owe and use the extra funds to pay off the second loan. For example, if your current mortgage balance is $250,000 and your home equity loan is $50,000, you could refinance for $300,000 (assuming your home’s value supports it) and pay off both loans. Learn more on combining mortgages from the RefiGuide.
- Pros: Simpler repayment, fixed interest rate, possibly lower overall rate
- Cons: Closing costs, possible higher rate than original mortgage
2. Rate-and-Term Refinance
If your home equity loan is relatively small, and you do not need additional cash, you can use a rate-and-term refinance to restructure both loans into a single fixed-rate mortgage without cashing out excess equity.
- Pros: Lower rates possible, reduced risk with fixed rate
- Cons: Must qualify with sufficient equity, still incurs closing costs
3. Loan Modification (less common)
In certain hardship situations, some lenders may offer a loan modification that combines both loans into one, though this is rare and often less favorable than refinancing through traditional channels.
Qualifications and 2025 Market Considerations
In 2025, lenders are keeping a close eye on factors such as:
- Credit score: Generally, 620 or higher
- Debt-to-income (DTI) ratio: Typically below 43%
- Loan-to-value (LTV) ratio: You’ll usually need at least 15-20% equity remaining after refinancing
- Home appraisal: Required to verify current market value
Because home values in many areas have continued to rise, borrowers may find they have more equity than they realized—giving them greater leverage to refinance and consolidate loans.
Risks and Drawbacks
While combining your mortgage and home equity loan can simplify your financial picture, there are considerations to be aware of:
- Closing Costs: Refinancing involves fees (2%-5% of loan amount)
- Resetting Loan Term: Starting a new 30-year term may increase total interest paid over time
- Equity Risk: Using more of your home equity increases risk in case of a housing market downturn
When Combining Makes Sense
- You have strong credit and income qualifications
- Current mortgage or equity loan has a high interest rate
- You’re seeking payment stability with a fixed rate
- You want to simplify your monthly obligations
Yes, you can combine your mortgage and home equity loan—typically through a cash-out or rate-and-term refinance. It can be a smart move to streamline payments, secure better terms, and manage debt more effectively. However, it’s important to weigh the long-term costs and benefits. Consult with a mortgage professional to compare scenarios and ensure it aligns with your financial goals.
References
Consumer Financial Protection Bureau. (2025). CFPB – What is a cash-out refinance?
RefiGuide. (2025). Can I Refinance a 2nd Mortgage?
U.S. News & World Report. (2025). Best Mortgage Refinance Lenders of 2025.
