There are times in our life that we will need some extra cash. The reason could be numerous. But what if you just don't have that kind of cash lying around when mortgage refinancing need arises. Have you considered your home as a resource? You could either consider taking out a second mortgage or refinancing your current one.
There are a lot of misconceptions surrounding these two methods. Some people see a second mortgage as adding new debt on top of old. They see refinancing as getting new loan to replace the old, nothing much changes. In this article, we hope to straighten things out for you, so next time you need some extra cash, you will know what to do.
It doesn't matter how you see it, refinancing and second mortgage are both loans. The main difference is that second mortgage is another mortgage loan on top of your old loan. And because your home already has a loan out on it, the second mortgage can't be equal to the amount of the first mortgage.
But how do they determine the amount for the second mortgage? The first mortgage is based on the purchase price of your home. The second mortgage is based on the equity that you have built into your house. This equity is the difference between the appraisal price of your home and how much you have paid towards the first mortgage.
Interest rates are generally quite high for the second mortgage as there is a greater chance of default. If you do default the first mortgage must be paid off before the second mortgage. Similar to the first mortgage, lenders offer either fixed or adjustable rate depending on your credit rating, the market and the ratio of the loan to the total value of the home.
You should only use a second mortgage to cover large amount of debt, such as credit cards, car payments, or medical bills etc. Or you can use the second mortgage as a source of capital for refinancing mortgage in business or another property.
However if you're not looking for a large payout, then refinancing is the way to go. Refinancing basically restructures your existing loan on your home. You will continue with one single payment each month.
Refinancing has several advantages. For example when you got your first mortgage your credit rating only qualified you for an adjustable rate mortgage. Once your interest rates become floating, you could end up paying more each month. But now that your credit could be better, so you can refinance and get a loan with a lower fixed interest rate.
Refinancing can also involve a reduction of the loan period. If you can afford the increase in your monthly payments, you will be able to pay off your loan faster and gain equity faster.
Depending on the type of money issues you have, either second mortgage or refinancing could be the right option for you. If you have already built a substantial equity in your home, you should always try to refinance before taking out a second mortgage.
If you found this article useful, you can get more great mortgage advice tips and tons of free investment advice at Invest Money Stocks.
This article was written by Richard Tyler - a happily retired investment guru who ran several successful businesses during his earlier years. He now shares his wealth of knowledge on investment, business and strategic wealth management at Invest Money Stocks. Ignorance is often the reason why some people are unable to harness upon what they already have to make more money while some 'in-the-know' get richer every year simply through investments. Richard sees it as a passion as well as a pleasure to share his knowledge and experience and hopes that his website will be a wealth of knowledge for those who need help in investment and wealth management matters. Invest Money Stocks covers a wide range of topics from business management, home budgeting, personal wealth management to stocks investment, options trading, penny stocks trading, forex trading, bonds, technical analysis, fundamental analysis and more.
ไม่มีความคิดเห็น:
แสดงความคิดเห็น