Refinancing a second mortgage is typically much easier than refinancing a first mortgage. It can be a great idea for many homeowners, while it can be a mistake for others. You must determine whether or not it will cost you more to refinance in the long run versus staying with your current mortgage, especially if you already have a somewhat low interest rate. Rates are low right now, but you should decide to refinance or not depending on how long you plan on living in your home, how much you still owe on your home, and its worth.
Refinancing a second mortgage basically requires some of the same steps as a first mortgage. You should carefully consider your reasons for refinancing again. If it allows you to pay off your mortgage faster, lower your monthly payments, and get cash out of your equity to pay for expenses such as college tuition or medical bills, then it could be a viable and sensible option.
Consider the following information when refinancing your second mortgage:
If you are in an area where home values are falling, refinancing your second mortgage may be more difficult than your first. A lender of a second mortgage is in a riskier position that the first lender. The reason for this is that the second lender probably wouldn’t get paid in full if you stop making payments and the house is sold or put under foreclosure. The first lender must be paid in full first, and unfortunately, there probably won’t be any money left after the attorney fees and other costs.
Before taking a second mortgage on your home, you should weigh the costs against the benefits very carefully. You need to shop around for a rate that is not going to be detrimental to your current financial situation. It’s a good idea to use a mortgage calculator to determine if refinancing will be worth it for your budget. A good suggestion to follow: Refinancing becomes worth your while if the current interest rate on your mortgage is at least 2 percentage points higher than the prevailing market rate.
The application process for a second mortgage is very similar to your first. In addition to submitting a full application to a lender that offers second mortgages for your property type, you must wait for the lender to determine if your property and financial situation meet their specific guidelines.
Second mortgages typically have higher interest rates. This is because second mortgages are much riskier in the lender’s eyes.
Attempt to get fees waived. Try to negotiate with the lender to see if some of the fees associated with your refinance, such as the appraisal and title fee, can be waived.
Consider all of the costs to refinance a second mortgage. The costs can mount up when you are required to pay the application fee, appraisal fees, home inspection fees, lender’s attorney’s fees, title search, and homeowners insurance.
Remember, failure to repay your second mortgage could mean the loss of your home. This is why you need to be diligent in doing the proper research to make sure that refinancing is a good option for you.