Home refinancing and second mortgages are two ways in which an individual can get some additional funds. Refinancing lowers monthly payments, saving you money that you can use towards other causes. A second mortgage is a secured loan against your property. You are borrowing against the equity in your home. The following discusses the purposes of both.
If you are a homeowner who is in need of additional funds or would like to save money, then taking out a second mortgage or home refinancing are two options to consider. Refinancing lowers monthly payments, saving you money that you can use towards other causes. A second mortgage involves taking out a loan against your property. You are using your home as collateral to borrow. The following discusses the purposes of both.
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 should you refinance or take out another mortgage? If you want a lower monthly payment, then refinancing could be the answer. Anyone who is looking to cover an expense or pay off debt should consider a second mortgage. Regardless, always read the fine print and know exactly what you’re getting into.