Refinancing a second mortgage can help a homeowner when extra money is needed or a reduction in monthly payments is desired. People have different reasons, but most agree that saving money in interest and freeing up monthly cash are the primary goals to be reached for their efforts. If considering this type of financing, it is important to analyze the time and cost factors, as not every one who refinances saves money. While a homeowner may be familiar with financing multiple times, refinancing a second mortgage may differ somewhat. This is simply is a mortgage taken in addition to an existing loan, against the equity that has been built up in the house.
While a first home loan is typically 15-30 years long, with payments scheduled so that the balance is paid off at the end of the term, another loan will usually have higher interest rates and shorter terms. Therefore, it is conducive for a homeowner to consider refinancing a second mortgage when the interest rates dip so that they can get lower monthly payments in addition to saving money on interest over the life of the balance. Getting financing again can be a way of reworking a home loan in order to obtain more favorable terms. There are various reasons for considering this option. Some people may want to pay off their current financing at a lower interest rate. Others may want to shorten the life of the balance for their home financing, which helps them save money on interest payments over the repayment term. In addition, it can help lower the monthly payments, or enable one to "cash out" with sufficient equity, to pay off other debt, such as credit cards or car balances.
Researching options on the Internet, or with a lending office at a local financing institution is recommended. This can be done to determine whether refinancing a second mortgage is a good choice for an individual situation or circumstance. Not only will several lending companies be willing to give the additional information along with a free quote, but also there are many free financial tools online, including calculators to help figure the new payments with a lower interest rate. Remembering that the balance must be paid back and that it is not free money is important. "When thou vowest a vow unto God, defer not to pay it; for he hath no pleasure in fools: pay that which thou has vowed" (Ecclesiastes 5:4-5). Before proceeding, make sure it will actually save money. If qualifying for an interest rate that is at least 2% lower than a current rate, the borrower will probably save money. However, still figure in the closing costs and application fees as well as any other additional costs, such as title insurance or an appraisal to be sure.
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