You aren't always required to combine your 1st & 2nd mortgage into a new 1st mortgage if you want to refinance. Refinancing of only the 1st mortgage is done all of the time, but when you have a 2nd mortgage and are only refinancing the 1st mortgage, the 2nd mortgage needs to subordinate to the new 1st mortgage you are getting. The reason being is that it was assumed that when you obtained the 2nd mortgage, that if the 1st mortgage was ever paid off (even in a refinance situation), the 2nd mortgage would slide into the 1st lien position on the title of your home - giving them greater protection/lesser risk in case of a default.
The subordination process requires the 2nd mortgage lender to evaluate the refinance of the 1st mortgage you are attempting to do, often including a full credit review, income/debt review, title report review, and even an appraisal review to make sure you have sufficient equity in the property. The appraisal isn't always required by them, for example if you are refinancing under the Making Home Affordable (HARP) program, or if you are doing a "streamline" refinance of your 1st mortgage, then the 2nd mortgage lender usually doesn't require an appraisal.
However depending on the details of your current 1st mortgage, you may still be required to get an appraisal for the refinancing of your 1st mortgage. There is no loan product that will just automatically lower your interest rate without any review - your information will always be reviewed by an underwriter if you want to refinance into a new mortgage. Even if you apply for a loan modification (which can potentially damage your credit) rather than refinancing, your information will still be evaluated.
As far as your reason, that is fine to not want to extend the length of the loan out any further than it already is, however you must realize that the payments on your mortgage statements are just the minimum you are required to pay. You can always make more than the minimum required payment, and in turn, that will reduce the amount of time it will take you to pay off that loan. So even if you refinanced into a 15-year loan, you can still make equal payments which would pay off your mortgage in 7 years. So if the rate on the new 1st mortgage refinance would be lower than your 2nd mortgage rate, it could be smarter to include that into the new 1st mortgage since you would be lowering the interest rate on all of the mortgage debt. That is where you and the loan officer would analyze the different options, and determine if combining your 1st & 2nd mortgage into a new 1st mortgage would be more beneficial than leaving the 2nd mortgage in place. Remember, it is the interest rate you are paying on your money vs. the term of the loan, because the term of the loan can always be shortened by making a larger payment than the minimum required.
Shane Milne | Lending in all 50 states | NMLS #81195... more