If you are currently in need of some cash and would like to access the equity in your home to get this, you have two main options. You could either refinance your current home loan for a higher amount, or you could keep your current loan and get a second mortgage. While having a second mortgage will result in having two payments to make, there are times when choosing a second mortgage is a better option than refinancing your entire loan. Here are a couple situations when this is true.
When Interest Rates Are Higher
The first thing to consider with this decision is the current interest rates on home loans compared to the interest rate you currently have on your mortgage. If interest rates right now are higher than the rate you have on your loan at this time, refinancing your loan would not make a lot of sense. Instead, you should probably keep the current loan you have to avoid paying more money in interest on the loan. To get the cash you need, you could look into a second mortgage. The interest rate on the second mortgage you get is likely to be higher than the rate you have on your first mortgage, but at least you wouldn't have a higher rate on all the money you owe.
When You Would Be Borrowing More Than 80% Of Your Home's Value
A second thing to consider is the percentage of money you will be borrowing compared to the value of your home. When a person borrows more than 80% of their home's value with a mortgage loan, the lender will often require the borrower to pay private mortgage insurance (PMI). This type of insurance protects lenders and doesn't really offer anything to buyers. If you will be borrowing more than 80% of your home's value, you may want to think twice about refinancing your loan.
If you choose to take a second mortgage, you will not have to pay PMI, even if the total amount you owe is more than 80%. PMI can be expensive to pay, but it is not something that is generally required with second mortgages on homes.
Getting cash through the equity in your home offers a lot of benefits over other options for obtaining cash. If you would like to learn more about second mortgages, contact a mortgage lender to discuss your situation.
Share22 May 2017
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