The Question Is: Refinance A Mortgage Or Take Out A Second Mortgage?

Home owners and property investors often face the prospect of either taking out a second mortgage or refinancing an existing mortgage. Refinancing an existing mortgage involves taking out another loan to repay the first loan.

Depending on circumstances, refinancing can be an option if the objective is to reduce monthly payments on a property. Mortgage rates do fluctuate depending on economic conditions and market competitiveness. Refinancing when mortgage interest rates are low can save a home owner or property investor thousands of dollars over the lifetime of the mortgage loan.

By shopping around the property owner may find a new lender prepared to repay the first mortgage and refinance at a lower interest rate. To maximize the benefits it is important to be aware of the charges involved, any tax implications and the importance of refinancing at right time.

Refinancing also provides an opportunity to cash out the equity in a property. If the first mortgage balance is $80,000 and property is valued at $180,000 the new lender can lend a much higher amount. The difference in the first mortgage balance and the amount being borrowed from the new lender could be used to help fund the purchase of an investment property. It really depends on the homeowner or investors situation and whether he or she wants to reduce debt or take on more debt.

To summarize; refinancing a mortgage at the right time can save a property owner thousands of dollars in mortgage interest payments, or it could assist the property owner in buying new assets.

Compare refinancing an existing mortgage to taking out a second mortgage. There are two major disadvantage of a taking a second mortgage. Firstly, a second mortgage incurs a higher rate of interest than the first mortgage. The other main disadvantage is that a second mortgage reduces the equity in the property.

Mortgage refinancing on the other hand can potentially reduce monthly mortgage repayments and reduce the interest rate. It is up to each property owner to seek professional advice as to what would be best option based on the particular financial circumstances.