Many people consider refinancing their home when they need to find extra capital. There are many reasons why this may be necessary, ranging from consolidating current financial borrowings to raising a down payment for a second home. Some people even choose to take a second mortgage out at the same time as the first; the second funds can be used to cover the original down payment and help you to avoid paying some or all of your property mortgage insurance. It is important to note that a second mortgage is different to a refinance.
When you refinance your home you are effectively paying off your original mortgage by borrowing enough funds to clear it and leave yourself with some additional funds; for whatever purpose you wish to use them for. In contrast a second mortgage is exactly that, a second loan against your property. It will usually be at a higher rate of interest than the first mortgage, this is because the second mortgage is second in line to be repaid. If the value of your property plummets the second mortgage is more at risk of being unpaid than the first one.
A second mortgage is calculated in the same way as the first; your borrowing limit is defined by how much you can afford to repay and how much equity is available in your home to release.
Advice
The best approach when considering a second mortgage is to enlist the services of an independent mortgage broker such as oemortgage.ca. This firm, and other s like it, will take you basic details and search the currently available mortgage deals for you to find the best one for your needs. They can often procure a better rate than you will be offered if you go directly to the mortgage agent. More importantly, they can advise you and help you to choose which deal really is the best for you; this is not always the one that appears to be cheapest. It is also important to take into consideration the length of the second mortgage. Unlike conventional mortgages they are considered to be more like, secure loans; this means that you can repay one over a very short timescale, such as one year. The maximum term for a second mortgage is usually twenty years.
As with all financial purchases it is best to take advice; your home will be at risk if you are unable to maintain the payments on either your first or second mortgage.
Alternatives
Before committing to either a second mortgage or a refinance deal it is essential to consider whether you have any other options. Depending upon the amount you need to borrow you may be able to secure the funds through a less risky unsecured route; this could include a personal loan, credit cards or even funds from a family member. With a volatile economy and an uncertain future it may be better to find alternative financing to avoid putting your home at risk. It may not seem an issue now, but it is difficult to know what the future will bring.