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When Should You Refinance A Second Mortgage?

Aug 17, 2007
A second mortgage allowed you to get the house that you wanted or to have extra cash for some project - but that was a few years ago. You have built up some equity in the house and are now wondering if it would be a good time to refinance your second mortgage. Here are some things you need to know in order to help you make that decision intelligently.

Refinancing your second mortgage can be a good deal if the interest rates are better than what you already have. Otherwise, not only would you be increasing your payments, but you would also be adding the cost of refinancing to it, too.

If the current interest rates are lower than what you are paying now, by at least a full percent, then it could be a good move to refinance. Or, if you have built up a sizable equity since you took out a second mortgage, then now could be a good time.

Refinancing a second mortgage means that there are two ways for you to go. One way is to get a second mortgage for all of the equity built up in your house - a home equity loan. A second way, which could be less costly, is a home equity line of credit (HELOC).

A third option may also be available - refinance everything. This would be especially appealing if you have an adjustable rate mortgage for your first mortgage. Interest rates are not exactly promising at the moment and you may want to look for something that is predictable for many years to come. Of course, you would only want to consider this option if you are planning on living in your present home for a few more years to come. The cost of refinancing everything would involve taking a few years to recoup the costs of doing just that.

If you choose to get a HELOC arrangement for a new second mortgage, then you have the option of having cash available - but it is also cash that you do not have to pay interest on until you use it. There is an assigned period of time that you have to use the designated amount (the equity you have) - usually this is about eight to ten years - depending on the time frame of the second mortgage. The last roughly two-thirds of the mortgage is the time that you repay the amount you used. All interest is only based on the amount that you use.

In order to save even more money when you get a new second mortgage, be sure to keep it reasonably short. Remember that the longer time frame you have on a mortgage, the more you are paying in interest. Talk to the lender to see what your options are for the amount of money you want.

As with any mortgage, be sure to learn all of the details involved. This includes understanding what other companies may offer if you were to deal with them. Money can be saved by comparing and also by negotiating for a better deal. They will usually work with people who want to negotiate, and they do expect it.
About the Author
Joe Kenny writes for NationsFinance.co.uk, offers easy mortgage applications along with UK Loan Store's mortgage broker section of the site.
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