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Refinance Second Mortgage

By Edited Oct 10, 2016 0 0

A mortgage is a loan - any loan for that matter that creates a lien on a person's property. It does not matter if this is a 3 bedroom home, an apartment space or a piece of land being currently used as a business site like a boarding house or a building for rent. As long as the property is legally entitled to the person, a mortgage can be taken out of it using the value of the property as grounds to cover the overall amount of the loan. Therefore, a second mortgage is simply a second loan being taken out using the same property as collateral or security.

People who usually take out a second mortgage or refinance second mortgage deals do so in order to gain a bigger loan. This money is usually used in order to pay off the first mortgage and other outstanding debts while having leftover money for other expenses - a practice called consolidation of debts. In other cases, second mortgages can be used to finance a new business venture, or simply provide the homeowner a better cash flow in the days to come which can be used to pay for home improvement projects, college tuition fees or dealing with any kind of financial emergency. The money from the loan can be obtained as a lump sum that carries an adjustable or fixed rate interest, or as a line of credit, or even as a combination of both.

But there are certain things to remember when refinancing a second mortgage. First of all, a second loan is always synonymous to a larger loan, which in turn really means a bigger debt. This is by far, the biggest pitfall that many homeowners succumb to. True enough, getting a second mortgage may be the cheapest option for financing larger sums because the interest rates are considerably lower than the original loan. But the bottom line is: it is still a bigger amount of money to be paid for in due time. If the loan is not paid for in full, regardless of how much money you have already returned to the lender, the property automatically defaults to the lending company when the loan matures and the aforementioned property is foreclosed.

If you are thinking about better ways to refinance second mortgage, you might want to acquire a second loan from the same lending company that holds your first mortgage. Naturally, other lending companies may look enticing as they offer your seemingly better second mortgage deals. But in some cases, "incidental" expenses can pile up so much that the second loan does not really bring in that much money to the table. A different lender would want you to shoulder property assessment charges and maybe even one or more home improvement projects that should increase the value of your home. Needless to say, this might amount to thousands of dollars already. Whereas, acquiring a second loan from the same lender already eliminates these additional charges because the lending company already knows the exact value of your home having undergone this process the first time you applied for the loan.

If possible also, try to secure a fixed rate loan rather than an adjustable rate. This would help keep costs down considerably especially in a severely value-fluctuating real estate market.

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