Cash Refinance Versus Second Mortgage
ByMany borrowers need helping chossing which refinance loan is best for their situation. Comparing benefits of cash out refinancing and second mortgage loans is always a good idea. There are a few differences between a 1st mortgage refinance and a home equity loan, so let us examine the pros and cons of each type of loans.
Dear Mortgage Lender: My wife and I presently have a thirty-year mortgage at 5% that has a fixed rate. The first mortgage loan balance is around $400,000. We paid $500,000 for the house with a $100,000 down payment. Our realtor friend said our home should be worth $650,000, based on similar homes that recently sold in the neighborhood.
We have owned our home for a little less than 2 years and thought that now might be a good time to get some money out of our home with a second mortgage or cash out refinance loan. With the money our goals are to consolidate credit card debt and finance a home remodeling project that we have been considering for the last few months. We have accumulated nearly $20,000 in credit card debt and a friend suggested refinancing the debt into a credit card debt consolidation loan. If we eliminated our credit card bills, we would wave good-bye to almost $1,000 a month in credit card payments. With interest rates so low for mortgages, we figured that this would be a wise move, but some of our neighbors suggested that second mortgages were risky and that using our home to refinance bills may not be a good move in case we needed the money for an emergency down the line. What do you think?
Which type of loan would make sense for us financially? 2nd mortgage or mortgage refinance? Also what is the difference between a second mortgage and a home equity loan? – J. Stevens, Virginia Beach, VA
Dear Stevens Family: Paying out money each month for minimum payments on high interest credit cards can eat your savings and strangle your cash flow. While using your home equity has some risks, millions of homeowners have been able to consolidate their debt, reduce monthly payments and save money when refinancing debt into a mortgage. Second mortgages or home equity loans are not easy to qualify for in 2010, so you may need to request a refinance loan that also extends you cash back for debt consolidation and the home remodeling. You are under 90% loan to value so if your credit is good, you shouldn’t have a hard time qualifying for a home refinance loan with a low competitive interest rate. From what we are hearing, most home equity lenders are only extending home equity loans to 80% for cash out and bill consolidation. Just a few years ago borrowers were able to qualify for 100% mortgage refinancing with fixed equity loans, but the default rates soared and lenders have tightened their guidelines significantly when it comes to second mortgage loans. It is also hard to advise you to get an equity loan at 6% when you may qualify for cash-out refinancing below 5% that is fixed on a thirty year term.
We also recommend comparing 1 point closing cost scenarios on refinance loans with no cost mortgage refinancing. Compare the rates to make sure the no cost option is worth the incentives.
Loading ...
Loading...