A home is where we create many memories with our loved ones. It is a place where we feel safe and secure. For most people, their home is their most significant investment. Every time you gain a small amount of equity on your home whenever you make a mortgage payment. Over time, this equity can grow significantly, so many homeowners choose to take out a second mortgage or refinance their homes.
Mortgage lenders offer different products to recoup the money they lent to you. The products offered are in the form of a refinance or second mortgage option.
There are several key differences between taking out a second mortgage and refinancing your home. This article will explore these differences and help you decide which option is right for you.
What Is A Second Mortgage?
On obtaining a second mortgage option, a lump sum of money is loaned to the borrower in addition to the mortgage they currently have on their home. The interest rate on a second mortgage is usually higher than the original mortgage, and it is also a shorter-term loan.
One major condition kept while choosing a second mortgage option is a mortgage lien: This legal document secures the loan by giving the lender ownership of your property until the debt is paid in full. If you fall behind on your mortgage payments, the lien holder can take possession of your home to sell it and repay the debt. The lender that one your primary mortgage is entitled to the first lien while the second mortgage lender has the second lien.
What is Refinance?
Refinancing is obtaining a new mortgage loan to replace an existing loan. The new mortgage loan may have a different interest rate, maturity date, and principal amount than the original loan.
Differentiating Points Between Second Mortgage and Refinance
The critical difference between a second mortgage and refinancing is that you are not taking on any more debt than you currently have with refinancing. You are simply getting a new loan to replace the old one. With a second mortgage, you are taking on additional debt.
The second mortgages do not serve you the privilege to change the interest rate and the term of your first loan. You cannot amend the term and the rates of your primary mortgage by adopting the second mortgage. However, in refinancing, this is not the case. Missouri refinances mortgage rates and the terms of your existing debt are open to getting altered.
You are burdened with paying double mortgage payments every month in the second mortgage option. You need to pay the primary mortgage lender and the current lender. While in the case of refinancing, the best refinancing companies in Missouri offer you a variety of rates and term options where the original debt gets replaced by the new loan, and you are only supposed to make a single payment to the new lender. This makes refinancing a much more feasible option.
The Bottom Line
Both a second mortgage and refinancing your home have pros and cons. It is essential to weigh your options and decide which choice is right for you. Depending on the current market conditions, one option may be better. Talk to a mortgage specialist to determine which is the most suitable per your financial condition, and keep many other factors in mind.
Contact your local mortgage lender if you are unsure whether a second mortgage or refinancing is right for you. They will be able to help you decide which option will go best for your needs.