December 11, 2001
By: Bev Dodd
Second mortgage: Benefit from your assets
If you're considering a second mortgage for extra cash, you have a choice between refinancing the first mortgage for an amount larger than the balance of the first mortgage, a cash-out refinance; or leaving the first mortgage as it is and taking out a second mortgage. We'll discuss this more below.
The first question to ask yourself is if a second mortgage right for you? The equity in your home is one of your most valuable financial assets. While a home equity loan is a great resource for letting you benefit from that asset, it does carry risks. Failure to repay the loan could mean the loss of your residence. Make sure that you honestly answer these questions before getting one.
Do I need a home equity loan? Will I be able to repay the loan? Will I be able to keep my other debt down?
A first factor to consider for your second mortgage is the lender. The lending institution you borrow from can have a profound impact on the rate, terms, and safety of your refinancing loan. Another factor is being clear about what you want to refinance. Do you have a number of debts you wish to put together in one monthly payment? Do you want to take advantage of lower interest rates and refinance your present mortgage? Are you in a financial situation where refinancing your home and taking out enough money from the equity could help you pay off your debt and lower your monthly payments? All of these factors influence how much you want to refinance and what you want to do with the money.
Experts agree that the time is right to refinance with a second mortgage -- interest rates are low, closing costs are being slashed, and no-cost and no-point loan options make out-of-pocket expenses minimal to non-existent... there is still the possibility that interest rates could take yet another dip.
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