Second mortgage is a good option to go for if interest rates drop to below the rate you currently pay. In order to understand the concept of second mortgage better, lets compare it with first mortgage.
The first loan you get in lieu of property is the first mortgage, whereas a second mortgage, or refinance, is taken when you yet have money to be repaid towards your first mortgage. For instance, if you have purchased a house for $50,000, for which you have already paid $25,000, you are already a part-owner of the home. Therefore you are eligible to take out a second mortgage on the part of the house you own for $25,000. Refinancing is a relatively faster process when compared to a first residential mortgage. There are many factors that may drive you towards going in for a second mortgage. Lets examine some of them.
Sometimes, the rates of interest at which you are repaying your loan may be more than the current rate in the market. Thus you may want to go for a fresh loan at those rates to repay the remaining amount. You can also go for refinancing if you already have an adjustable rate mortgage and there are indications are that interest rates may go up in the near future. Going for a refinance at this stage may ensure that you enjoy the benefits of the current rates even if the market rates go up.
But you must keep a few things in mind before taking out a second mortgage: first of all, negotiate hard. This should be done in order to pay relatively lower fees when compared to your first mortgage. The second mortgage should not just ensure that your monthly payment is reduced, but also ensure you are able to add to your savings.
Second mortgages can be a good option to reduce payment on your first mortgage; however, you must be careful that you will in fact obtain a lower rate by carefully researching the current trends in mortgage lending.
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