Comparing Second Mortgages and Refinancing for Home Improvements 1

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Comparing Second Mortgages and Refinancing for Home Improvements

Both refinancing (in particular, cash-out refinancing) and second mortgages (either through a home equity loan or a home equity line of credit) let homeowners access home equity.

Deciding between the two depends on the same criteria used to decide between cash-out refinancing or second mortgages for any eventual purpose. They include:

flexibility
how much money is needed
when the money is needed
closing costs and annual fees
budgeting monthly payments
financial discipline
length of loan period
interest rates

With cash-out financing, the flexibility is the lowest. Not only does the money come in a lump sum-like with a home equity loan-it is also less likely to be a selectable amount.

Additionally, closing costs and fees will likely be higher than that for a second mortgage. However, the potential benefits of the new mortgage (lower monthly payments and/or reduced interest) can certainly outweigh this disadvantage.

But, perhaps the most importance difference-and whether it is an advantage or disadvantage-has to do with the nature of refinancing and second mortgages. Second mortgages, by definition, are an additional loan (or put another way: more debt).

The bottom line is that only the borrower-with accurate information that is carefully analyzed-can determine the ultimate advantages between a second mortgage and cash-out refinancing.

Next: Do you want to experiment with a home equity calculator or a refinance calculator, or would you like to be matched with up to five home equity and second mortgage lenders or matched with up to five mortgage refinance lenders?

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