If you want to borrow money using your existing mortgage, a refinance or a second mortgage can be your options. Here’s what you need to think about before you pick the right loan and how to make sure you get the best deal out of it.
Refinance and second mortgage: The difference
Refinancing means that you simply replace your existing mortgage with a new one that offers better rates or terms. The new lender pays off your existing mortgage, and subsequently holds the mortgage on your property.
When you take out a second mortgage you are taking it out against your current property – in addition to your existing mortgage. Simply put, you are applying for a home equity loan.
For example, the total amount of your mortgage is $500,000. You have already paid $300,000. If you are going to refinance your loan, you can get the same amount of the original mortgage loan, which is $500,000. But, if you are borrowing against the equity of your home, you may only get as much as $300,000. While refinance is a new loan, second mortgage is simply an additional loan on the mortgaged property.
Refinance: The Pros
Borrowers refinance home loans for various reasons.
- Cash-out refinance is a great way to borrow money
- Convert an adjustable rate mortgage to a fixed-rate mortgage
- Get a lower interest rate
- Pay off your loans faster
- Use proceeds of refinance to consolidate debt, pay off high-interest credit cards, and bad debts
Second Mortgage: The Pros
You will never run out of positives when it comes to second mortgage.
- Favorable interest rates
- Home equity remains undisturbed, and it may eventually appreciate in value overtime.
- Inexpensive to close
- It gives you quick access to cash
- Tax-deductible interests on your mortgage payment
- The loan proceeds can be used for whatever you want-such as debt consolidation, home renovations, debt payment, and other personal reasons.
When does refinancing make sense?
It depends on your financial goals. Remember that with refinancing, the length of time to repay your mortgage finances is longer. So, when you plan to refinance your mortgage make sure that you have the right purpose. For example, if the mortgage interest rates of the new loan are lower; you can take advantage of refinancing to permanently lock in a newer and lower rate for the entire term of the loan. If you want to borrow against you home equity so you can use it for home improvements, the increase in the value of your property and equity, justifies the longer loan term.
On the other hand, a second mortgage or a home equity loan is beneficial for short-term needs, such as payment of high interest debts. While you continue paying the original mortgage, you can still enjoy the lower interest rate than other high-interest debt options.
Are you planning to apply for refinance or second mortgage? NSW Mortgage Corp offers refinance and second mortgage with better terms. Contact us today and our team of financial advisors will help you choose the best loan option for you.
