Thursday, July 10, 2008

REFINANCING/SECOND MORTGAGE

Refinancing your home’s mortgage is not the same as getting a second mortgage. Both allow you to cash out your home’s equity, terms and rates differ between the two types of loans. First learn the loans’ features before you refinance, to find out what’s the best option for you.

Your Mortgage

Replacing one mortgage loan with another is refinancing. Usually refinancing lowers mortgage payments through lower interest rates or longer loan terms. You can cash out part or all of your home’s equity while refinancing.

Refinancing requires paying closing fees. To recoup these costs, you usually need to stay in the house for at least five years. However, you will save money and can establish better terms than if you choose a second mortgage.

Second Mortgage Option

Second mortgages, or better known as home equity loans, have slightly higher rates than mortgages, but you have little or no closing costs. Second mortgages also only charge interest on the amount you borrow, not the total amount you are approved for. You can take out your equity over the course of several months or years. The lenders have different terms, so watch out for balloon payments or repayment fees.

If you want to use your equity to make some home improvements but plan to sell soon, then a second mortgage would be better than refinancing your mortgage. Second mortgages also are a better choice when your current mortgage interest rate is lower than those being offered by refinancing lenders.


Consider This

Consider the purpose of the loan, when deciding which financing option to choose. If you want to reduce monthly payments, then refinance. If you simply want to tap into your home’s equity, then apply for a second mortgage. Also consider how long you want to stay in your home. You can lose money refinancing your mortgage if you don’t stay in your home. However, if you sell your home or refinance, you will have to pay off your second mortgage. Always research, that’s how you will know and understand which loan best suites your needs.


Happy Surfing,