When you need extra money and you own your home you have two options – refinance or second mortgage. Choosing between the two options is really not that difficult if you understand both options, your situation and your needs. You can get into trouble if you jump into a refinance or second mortgage without considering all the factors. Being a smart consumer will allow you to get the extra money you need without risking your financial future.
Reasons to Choose a Second Mortgage
If you are looking into refinance or second mortgage then you need to know what would make each a better choice. The reasons to choose a second mortgage include:
- You can easily afford the monthly payment.
- You have the money for closing and associated costs.
- You need a large sum of money right now.
- You are in good standing with your first mortgage.
- You have significant equity in your home.
Reasons to Choose Refinance
When you refinance you simply get a new interest rate on your existing mortgage. Refinancing will help you to save money every month on your payments and save money overall on what you are paying in interest. The reasons to choose refinance include:
- You need to lower your monthly bills.
- The interest rates are low.
- You want to save money in the long term.
- You do not need a large amount of money right now.
Considerations to Make
You should know that refinance or second mortgage options are not going to just come easily. You have to qualify for either option. If you have bad credit or are behind in your mortgage payments then you may not qualify for either option.
You need to understand your current finances and know what you can afford, as well. A second mortgage means a second monthly payment. Additionally, it means more risk because if you default on it then your home is still at risk of being seized for payment.
Makes sure that you understand both options and that you think through what is best for you and your situation. Do not jump into anything until you have all the details and shop smart.
Weighing the decision between refinance or second mortgage should be something you do carefully. You need to make sure that you look at each option and make the best choice. You want to keep your home and family safe. You need to make the best choice because your financial future and the future of your family weigh upon your decision.
You might have suspected that all your mortgage options ended with your first mortgage. Second mortgages, though, are a reality and something that can help you out when you are in need of some extra cash.
When it comes to a mortgage, second mortgages are something you should consider carefully. Unlike your first mortgage, second mortgage risks are high. You will not only risk your home, but you will risk extreme credit and financial issues. This is because when you default on a second mortgage the lender must then pay your first mortgage in order to take your home.
So, a default on a second mortgage means you lose your home and owe for your first and second mortgages. That is why you need to clearly understand how your mortgage works and if the risk is something you can take on.
Understanding Rates Involved
With a second mortgage the rates involved are going to be higher than with your first mortgage. Second mortgages carry a higher interest rate because they are higher risk to the lender. Additionally, just as with your first mortgage, second mortgage rates can vary greatly from lender to lender.
You have to look around and get a variety of quotes to see what kind of rates you can get. The bottom line is you have to choose a rate that is affordable or you should forego the idea of a second mortgage.
Understand All the Costs
Just as with your first mortgage, second mortgage costs include things like:
• appraisal fees
• application costs
• closing costs
It is going to be much like getting a first mortgage, so be prepared for all the associated costs and make sure you have the money to cover them.
Determine the Length
The length of a second mortgage is usually varies, but can last up to 20 years. The structure of the loan will really determine the payback period. It is important to consider your first mortgage when determining the length of your second mortgage. If you had planned on having your home paid off in a certain number of years, then you will need to make sure the second mortgage works into those plans. You can shop around and negotiate the length of the loan, just as you did with the rates.
Having the option of a second mortgage is nice for a homeowner who can responsibly handle it. That is why understanding all the aspects and costs are important. You have to ensure that you will be able to pay for the second mortgage so you do not place yourself at risk of defaulting and losing your home.
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