What's the Difference Between Refinancing My Home and Getting a Second Mortgage?

You would like to borrow money to reorganize your finances or possibly make some improvements to the home. When you discuss the idea with friends, some of them recommend you look into refinancing your current mortgage. Others urge you to leave that first mortgage as is and talk with lenders about what second mortgages have to offer. Before you determine which one is best for your situation, here are a few points of different that should be kept in mind.

Second Mortgages Require More Fees and Charges

When you talk with your current mortgage provider about refinancing the debt, you’re dealing with someone who already knows a great deal about how you manage your obligations. All your essential information is already in the lands of the lender. That coupled with your history with the lender greatly simplifies the application process. It also means that several of the fees and charges that were paid when you first secured the mortgage will not apply to the refinancing.

With a second mortgage, you are essentially starting over. That means more information to provide, more credit checks to run, and having to pay similar fees and charges all over again. Unless that second mortgage happens to come with highly competitive interest rates and terms, refinancing could be the better choice.

Second Mortgages Are Sometimes Harder to Obtain

Your credit may be better or worse since you secured the primary mortgage. Depending on how your score and financing look right now, being approved for a second mortgage could be difficult. Even when you are working with a lender who provides poor credit mortgages in Kitchener, and you are up to date on the payments on your first mortgage, there may be some hesitancy to approve the loan.

While your current financial status could also impact refinancing the current mortgage loan, the fact that it is currently up to date and you have an established history of making payments on time will stand you in good stead. Put that solid history to work and find out what sort of terms your lender would provide with the refinanced loan.

You Have Two Obligations to Manage Rather Than One

Budget logistics is also something you have to consider when it comes to balancing a primary mortgage with a second one. Where you once had one obligation to pay each month, there is now two of them. Take a good look at your net income and your current average monthly expenses. Will one more obligation fit into the budget without causing any difficulties?

It it will be difficult to add the second mortgage payment to the budget, consider refinancing the current loan. Even with the refinancing, you may find that the amount you must pay each month is not that different from what you already pay. In fact, it might even be a little less depending on current interest rates, the amount you need to borrow, and the number of payments associated with the refinanced loan.

There are certainly poor credit mortgages out there that are worth considering when you need a second mortgage. Explore each of these two options carefully before making a decision. Project how you each one would affect the budget and how much you would end up paying over the long term. It won’t take long to settle on the course of action that makes the most financial sense for your situation.