Home mortgage refinancing and second mortgages
Home mortgage refinancing and or getting a second mortgage are two simple ways to get cash from your investment or home. Refinancing changes the mortgage terms and lowers payments and gives you cash to use for other purposes. The locked up equity in the property is converted into liquidity and the funds can be used to pay some important needs. A second mortgage is a lien on the property against the equity of the property in question.
Refinancing can lower monthly payments, saving you money that you can use towards other needs and requirements. A second mortgage is an additional lien You are using your home as collateral to borrow on it and hence create a lien to the lenders.
Home Mortgage Refinancing
If you find that your monthly payments are too much to handle, then refinancing could be a viable solution. It could also result in savings if the interest rates have dropped since you took out your mortgage. If your earnings are significantly more than in previous years, then perhaps you would like to shorten the length of your mortgage, and increase your payments. This way, you can pay off your mortgage sooner.
As a rule of thumb, refinancing is advised if you can obtain an interest rate that 2% lower than your current rate. Anything less than 2% may not be worth doing.
If lower interest rates aren't available, then another option is to extend your mortgage term if you need to reduce monthly payments. However, this will result in higher interest rates, and the total amount paid will be more overall. So this option is only advisable unless it's absolutely necessary.
One of the downsides with home refinancing is the closing costs. This is why the 2% is the rule of thumb for refinancing, because anything less may not result in much savings at all.
A second mortgage can really be used for just about any purpose. One common use is for home renovations. Their home might be their greatest asset, and they want to increase the overall value of it through renovation. The result is having even more equity in your home.
With rising tuition rates, some parents will take out a second mortgage to pay for their child's college education. This often times is the most attractive option for covering this expense. The payments can be spread out over a longer period of time, allowing it to be more affordable compared to other loans.
A second mortgage can be beneficial for someone who has a lot of debt to pay off. The interest rates for many types of debt can be much higher than what you would pay for a second mortgage. This is particularly the case for credit card debt. Over time, you will eliminate debt and save a lot of money.
So when should you refinance or take out a second mortgage? If you merely ant to lower your monthly payments you should consider refinancing. You may or may not chose to get cash. If you are looking to get cash for some expenses and pay off debts than you need to cover, you should look for a second mortgage. Always discuss these options with a qualified mortgage professional.