Getting a Second Mortgage Can Be Better Than Refinancing
Here are some reasons why getting a second mortgage can be easier and better than refinancing your home. Of course, in your personal situation, refinancing might be better for you.
Tap Into Your Equity
You can use your unused equity to get a 2nd mortgage. It will save you money on fees because of the smaller loan amount. Also, usually on a 2nd mortgage, you will pay back the loan in a shorter amount of time, as opposed to the first mortgage.
It's a Short Term Loan
With the costs involved in refinancing, you typically need to keep the loan for about two years to break even. However, with a 2nd mortgage you don't have those fees to worry about recovering. 2nd mortgages do have minimum balance and early pay off fees, but they are significantly less than refinancing fees.
Get a Home Equity Line of Credit
A 2nd mortgage can be taken out as a line of credit, which allows you to take out your home's equity over the course of several years. The money can be accessed with a check, ATM card, or direct deposit, depending on how you set up your account with the lender. Additionally, you only pay interest on the money that you have withdrawn.
Higher Rate of Approval
Lenders are usually more lenient when approving second mortgages or home equity loans. Since the amount is usually less than a first mortgage,, lenders can be more sure that they will receive payment. If you have had a few credit glitches in the past two years, think about going with a second mortgage.
Weigh Your Options
Second mortgages aren't for everyone. You should weigh the cost of PMI and payments when choosing your financing options. Borrowing more than 80% of your home's value will subject you to private mortgage insurance.
Your monthly payments should also be a factor in your decision. By taking out equity when refinancing your home, you will have a lower payment than if you had both a mortgage and 2nd mortgage payment. Also, if you refinance in the future, you will have to pay off your 2nd mortgage.
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