At some point, having two mortgages made perfect sense. Your second mortgage probably paid for something useful, and was much easier than refinancing the whole house.

Times and circumstances can change quickly, however. That's why it pays to rethink your mortgage strategy periodically, and decide if you might save money through a refinance, especially when 2nd mortgage rates are on the move.

Fixed or variable rate?

To begin the decision process, compare prevailing second mortgage rates to what you're currently paying. Usually, home equity loans have a fixed rate and home equity lines of credit (HELOCs) have variable rates.

If you have a fixed-rate mortgage, and you believe rates will continue to rise, you're better off not refinancing. The exception is if you're paying a significantly higher rate than what's currently available on second mortgages. Refinancing to a lower fixed rate makes sense; refinancing to a higher fixed rate usually doesn't.

If you have a variable rate 2nd mortgage, your monthly interest and minimum payment will increase every time interest rates increase. This could put pressure on your household cash flow. Refinancing from a variable to a fixed-rate loan will insulate you from further rate increases.

Milking the cash cow

Sometimes it makes sense to refinance your first and second mortgage into one larger loan. This is a good idea if:

• You want to cash out some of your equity and streamline your payments.
• First mortgage rates are attractive, relative to what you're paying now.
• You want a structured plan to pay off your HELOC.

Before making any decisions, find out if your second mortgage has prepayment penalties. If you're considering combining your first and second mortgages, ask your lender about appraisal requirements and closing costs.

These are the basics that you need to know to decide if a refinance is in order. Now, when times change, you'll be ready to manage your mortgages like a pro, and change with current economic conditions.