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Pros and Cons of Refinancing With a Second Mortgage
Author David Schneider | Aug 10,2007
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If you have had a mortgage for some time, have made regular payments and have built up some equity in your home, you might want to consider a second mortgage. Even if you don't think you need a second mortgage, it often makes good financial sense. Here are some of the pros and cons of refinancing with a second mortgage.
Pros:
Lower rates. If you purchased your home with a fixed rate mortgage, you probably have been paying close to whatever was the prime rate at that time. Circumstances may have come about that will give you the opportunity to get a mortgage today at a lower interest rate than you did then. In this case, taking out a second mortgage and using it to pay down your first mortgage essentially means replacing a higher interest rate with a lower one. If you can do that, you can save thousands, in addition to giving yourself a lower monthly payment. If you're letting such an opportunity pass by, you're costing yourself money each month that could be put to better use.
Change Your Mortgage. Perhaps your old mortgage was an adjustable rate mortgage and you're ready to move to a fixed rate system, or your financial situation has changed so that you want to switch from an interest only mortgage to paying capital right now. A refinance with a second mortgage can help you do that.
Extra Money. It's also possible to use a second mortgage for other things, such as debt consolidation or home improvements. If you have enough equity, you can take out a large enough second mortgage to pay down your first mortgage and take care of other expenses.
Get rid of Private Mortgage Insurance. If you initially took out a mortgage for more than 80 percent of your home's value, you are also paying private mortgage insurance, which does nothing for you but protects your lender in case you default. If you have enough equity, a second mortgage is a convenient way to do away with an extra expense you don't need.
Cons:
Cost. Like any mortgage, there are associated fees with refinancing. Often, the fees you will pay for your second mortgage will pay for themselves in the long run if you get a more favorable rate or are able to pay down other, larger debts. Still, these are real costs that you need to consider before entering into a second mortgage.
Credit Issues. If you can't get a favorable rate on a second mortgage, refinancing may not help you, and good credit is important if you want to get a good second mortgage. On the other hand, you may choose to use your second mortgage for debt consolidation, improve your credit picture and then tackle your mortgage situation.
To find that rate you need for a refinancing loan, you'll want to use our online search form. It's fast, free, secure and quickly provides you with up to four potential lenders and their average rates. Use the information to compare lenders and find the one that can provide the right second mortgage loan for you. |
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