Should you go for second mortgage or prefer refinancing your first mortgage? Second mortgage is always offered at higher rate of interest than the first one. Moreover, second mortgage reduces your equity in the home. These two drawbacks of second mortgage give upper hand to mortgage refinancing. Mortgage refinancing is done to cut down monthly mortgage repayments and reduce interest rate.

Refinancing your existing mortgage means taking another loan to repay the first one. Now you may ask why will I need another loan to repay the first one and what’s the benefit of doing so? There are multiple benefits of refinancing but the most important of all is to reduce your monthly payments. How to do that? Keep a watch on the mortgage rates. They are as dynamic as stock market index! Presently, the mortgage rate is touching the historic low point. This could be a good time to refinance your mortgage loan.

Lock in your rate now to get benefits of lower interest rate. Your new lender will repay your first mortgage. You can easily lower down your monthly payments by 1000s of dollars, depending on what you are paying now. In the long run or at the end of your loan life, you will find that you have saved a huge amount for yourself by refinancing at right time.

Besides savings, refinancing also gives you benefit of cashing out the equity in your home. Let’s assume you have first mortgage balance of $100,000 and your property value is 200,000. The new lender can offer you much more than your first mortgage balance. The difference in your first mortgage balance and the amount you are borrowing from new lender can be used for multiple purposes. You can use that money for home improvements or for buying yourself a new car. Refinancing, if seen from this perspective, not only saves your fortune but also can help you building new assets.

It’s better to refinance now and save great sum of money that can be used for many other purposes. After refinancing you will find that your monthly payments have gone down and equity in your home is building faster than ever.

A second mortgage is a secured mortgage loan which is secondary to another loan against the same asset. In the real estate arena, a singular property can have numerous loans against it. The mortgage loan that is duly registered foremost with the proper state, city or county agency is classified as the first mortgage. Hence, the mortgage loan registered second is classified the second mortgage, a third loan against the same property is considered a third mortgage, and so on. So the same property can have multiple mortgage loans.

A second home mortgage loan is also called a subordinate mortgage because if this loan goes into default, the primary or first mortgage is paid in full then, the second mortgage receives any money. Due to this reason, second mortgage lenders are taking on more risk, thus they pass on some of the risk to you by charging a higher interest rate. If you are thinking about taking out a second mortgage make sure that you can afford to do so and are prepared to place yourself in more challenging financial circumstances with regards to your mortgage loan.

Once upon a time second mortgage loans had a stigma of financial hardship attached to the homeowner who sought the loan. However, overtime this is no longer the case and there is wide spread appeal and acceptance of second mortgages.

Types of Second Mortgages:

Home Equity Line of Credit Home Equity Loan Traditional Mortgage

A second mortgage may be good option for:

Home improvement Home renovation College tuition Debt consolidation Emergencies

Make sure you get a free second mortgage rate quote to see if it makes sense for your specific financial goals.

Why should you take out a second mortgage or a home equity line of credit instead of refinancing?

Well…You Shouldn’t!

Why Not?

1. Second Mortgages usually have an interest rant that is twice or even three times as high as your first mortgage rate. You can refinance instead and keep a very low rate. In the long run a second mortgage will just cost you money in interest charges.

2. Home equity lines of credit are designed for mortgage account executives (salespeople) to sell you on using it like a credit card attached to your home. They will try to convince you to use it over and over again.

3. A refinance loan is better for the equity in your home. Very few companies will refinance your home at 100% of it’s value without forcing you to take out a second mortgage. You don’t want to use 100% of your equity because that means you no longer have that equity to fall back on in emergency situations.

4. Second Mortgages and Home Equity lines of credit are designed to provide account executives (salespeople) with another tool to sway you into putting another commission in their pocket.

5. Your equity is a precious thing and should not be used for unnecessary add ons or impulse buys. If you don’t need it and there is even a slight chance you can’t afford it, then don’t get a second mortgage to buy it.

The only reason that I would ever recommend a second mortgage or a home equity line of credit is in an emergency situation. Only when there is no other option and you must take out a loan would I recommend either one of these options.