2nd Mortgage - Better Than Refinancing
By Carrie Reeder
You have probably received refinancing offers in the mail
or advertised online touting your ability to pull out your home's equity.
But a 2nd mortgage, also called an equity loan, may be a better financing
option than refinancing your mortgage. 2nd mortgages are ideal when you
just want to tap into your equity, plan to move soon, or are unsure about
the amount you want to borrow.
Tapping Your Equity
Tapping into your home's equity is best done through a
2nd mortgage if you already have a low interest loan. Typically, applying
for a 2nd mortgage requires fewer fees than refinancing a mortgage. 2nd
mortgages are also paid back sooner, so your interest payments are less.
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.
Flexible Loan Amount
A 2nd mortgage 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you have withdrawn.
Lenders tend to be more lenient with approving 2nd mortgages.
Since the amount usually is less than a traditional loan, lenders remain
confident that they will receive payment. If you have had a few credit
glitches in the past two years, think about going with a 2nd mortgage.
2nd Mortgage Mistakes
2nd 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
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
the Author: Carrie Reeder is the owner http://www.abcloanguide.com,
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