What’s the Difference Between Second Mortgage and Refinancing Your Home
Homeownership has become more accessible for everyone, thanks to the diverse mortgage options available. But since getting good loan deals and interest rates are heavily dependent on the user credit, loan-to-value ratio, and more, not all homebuyers can get the better end of the mortgage stick.
Nonetheless, every payment on your mortgage increases your home’s equity, so reaching a sufficient equity value can give you the option to ease your financial burden in two ways: get a second mortgage or refinance. Both options can do wonders for lowering your overall term rates, but they can also do more harm than good if you choose the option that doesn’t fit your needs.
What You Should Know About a Second Mortgage
Getting a second mortgage involves borrowing against your home’s equity and receive it either in installments or in a lump sum. You can leverage a second mortgage using two ways:
- Home Equity Line of Credit – this type of second mortgage allows you to access your current funds using various rates, allowing you to spend your credit limit and only pay the remaining balance at the end of your draw period in monthly installments.
- Home Equity Loan – the most common type of second mortgage, this allows you to borrow against your home’s equity via a lump sum payment, though you will have to pay monthly installments with a fixed interest rate,
Getting a second mortgage makes sense for homeowners who want to keep their current loan terms. If your existing mortgage already offers desirable deals, then a second mortgage makes sense for those who wish to consolidate their debt. It also doesn’t have costly closing fees, but the drawback is that you can’t change the term or interest rate of your current mortgage.
You also need to have the available funds to pay for another mortgage payment or risk losing your home, especially since a second mortgage requires you to put a lien on your home as a security measure for lenders.
What You Should Know About a Refinancing Your Mortgage
If you want to change your loan term, leverage better interest rates, or simply want to change your lender, refinancing is the right way to do it since it replaces your current mortgage with a new loan.
You can refinance your home using a cash-out refinance, which allows you to use your equity to enhance for a higher principal. Another option is the rate and term refinance, which is all about adjusting your current mortgage without affecting your principal balance. Either way, both options allow you to cover family expenses, have enough cash to make home improvements, or match your cost of living.
The Bottom Line: When It Makes Sense to Get a Second Mortgage or Refinance
If you have plans of changing your loan’s term or rate, then refinancing your mortgage is the right choice for you. Meanwhile, you can maximize your equity and consolidate your debts by opting for a second mortgage. Either way, it’s important to analyze whether you have the necessary funds to cover all the additional costs that come with both mortgage options.
Why Choose EST Home Mortgage?
Finding the right loan and mortgage options that best suit your specific needs and financial capabilities is a complicated process, but the home buying experience doesn’t have to be as stressful with the help of our mortgage experts at EST Home Mortgage.
We can also help determine whether it’s better to refinance your current mortgage or get a second mortgage, so get in touch with us today and see how we can make your loan processing as smooth-sailing as possible.
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