Compare Refinancing and Second Mortgage Loans with helpful tips and advice from the home equity loan experts at BD Nationwide.
Refinancing vs Second Mortgage
When trying to determine what to do about your home, you have so many options to consider. As various companies disclose their terms, you may find it difficult to decide between a second mortgage and home refinancing. Here, we’ll take you through the basics of each so that you can make the best choice for your situation.
- Utilizing a second mortgage or refinancing can provide access to the equity in your home.
- Your individual financial circumstances and overarching objectives dictate whether a second mortgage or refinancing aligns with your needs.
- A 2nd mortgage suits individuals seeking immediate access to a lump sum or revolving line of credit while maintaining their original mortgage terms.
- On the other hand, a cash-out refinance is preferable for those aiming to leverage their home equity without acquiring a second mortgage. Through refinancing, borrowers have the opportunity to modify their mortgage rates and terms, potentially reducing their monthly payments.
Second Mortgage
Obtaining a second mortgage is often referred to as borrowing against a home’s equity. It is also synonymous with home equity loans and home equity lines of credit. A second mortgage loan allows you to get cash immediately when you want to remodel your home, pay off bills, or consolidate debt. Home equity loans and home equity lines of credit are two types of second mortgages. An equity home loan allows you to get an immediate amount of cash; these are generally set at a fixed interest mortgage rate. On the other hand, a home equity line of credit provides the borrower with the ability to borrow against the equity up to a certain amount; the HELOC account, as it is commonly called, is usually set at a variable interest rate.
Home Refinancing
Home refinancing means that you’ll be getting an entirely new mortgage with a new interest rate and term. Usually you will be refinancing in order to lock in at a lower interest rate. When applying to refinance your home, you’ll still have to pay some of the same fees you paid when getting your first mortgage: loan application fees, loan origination fees, and appraisal fees. Weigh the pros and cons of a cash out refinance and home equity loan programs.
What Is the Difference Between Home Refinancing and a Second Mortgage?
Being a homeowners provides many financial benefits.
Should you seek to tap into your home’s equity for such purposes, you might consider refinancing your mortgage or obtaining a second mortgage.
When weighing the merits of a second mortgage versus a cash-out refinance, it’s crucial to assess their respective advantages and drawbacks to determine the best fit for your needs.
Both second mortgages and cash-out refinances afford you the flexibility to utilize the funds as you see fit.
However, leveraging your home equity through either option is advisable primarily for debt consolidation or home renovation projects.
In both scenarios, your property serves as collateral, implying that failure to meet payment obligations could potentially result in foreclosure.
Yet, disparities exist between second mortgages and home refinancing. Second mortgages typically entail higher interest rates compared to cash-out refinances. Conversely, while cash-out refinances often involve higher closing costs than home equity lines of credit (HELOCs) or home equity loans, they constitute a single, larger loan as opposed to an additional loan alongside your primary mortgage. Additionally, whereas a second mortgage may only provide access to a portion of your home equity, a cash-out refinance may offer the option to tap into the entirety of your property’s equity.
When opting for a second mortgage, you have the flexibility to select how you receive funds. With most home equity programs you can either receive money as a lump sum or through a revolving line of credit. Should you require a lump sum for purposes such as debt consolidation or home renovations, a home equity loan is the suitable choice. Conversely, if a revolving line of credit better suits your needs, perhaps due to uncertainty regarding the required amount or a desire to defer payments during a draw period, a HELOC is the preferred option.
Second mortgages entail distinct interest rates and repayment schedules. Typically, the interest rates on second mortgages are higher than those for primary mortgages but lower than rates for personal loans or variable rate credit cards. Both HELOC credit lines and home equity loans necessitate meeting equity and credit prerequisites, along with potential closing costs. While certain lenders may assist with covering some of these fees, not all providers extend second mortgage options.