Refinancing with cash back can be an excellent way to borrow against your home’s equity. In today’s economy a second mortgage could be a better choice. Here are some of the advantages of taking out a second mortgage on your home.
Borrow against Your Equity
If your current mortgage already has a low interest rate a second mortgage will be a better option than refinancing to a higher interest rate. Second mortgages usually come with fewer fees than refinancing and can be paid back sooner.
Refinancing is expensive, especially when interest rates are rising. The costs involved in refinancing your mortgage require you to stay in your home for at least two years to recoup those expenses. The advantage of a second mortgage is that you will not have to pay these fees or worry about recouping your losses.
Home Equity Line of Credit
If you use a home equity line of credit you will have access to your equity over a period of several years. This money is available to you by writing a check, using a debit card, or by requesting an electronic deposit. The advantage of a line of credit is that your finance charges are based only on the amount you spend.
You may find it easier to qualify for a second mortgage then to refinance your current mortgage. If you have less than desirable credit consider a second mortgage for your home equity over refinancing and taking cash back.
Common Homeowner Mistakes
Second mortgage loans are not for every homeowner. Carefully plan your budget so you do not become overextended and unable to make your payments. Your second mortgage is secured by your home just like your primary mortgage; if you fall behind on the payments your lenders could foreclose and take your home.
Borrowing too much equity could result in your lenders requiring you to purchase Private Mortgage Insurance (PMI). Private Mortgage Insurance can add hundreds of dollars to your monthly payment and does nothing for the homeowner; PMI only protects the lender from loss due to foreclosure. You can learn more about your mortgage options, including how to avoid common mistakes, by registering for our free mortgage guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”