Q: I am trying to determine whether to refinance my mortgage, or take out a second mortgage. Which one should I do?

A: When interest rates are in a falling environment, it makes more financial sense to refinance your entire mortgage in order to take advantage of a lower interest rate. This will lower your monthly payment. The situation is exactly opposite in an environment of rising interest rates (which applies now). If the interest rate on your current mortgage is 6%, and the going rate right now is 6.5%, it will be more costly to refinance your entire mortgage. It would be better to simply apply for a second mortgage and pay the higher interest rate on just the second mortgage balance, rather than on your entire mortgage loan. An added benefit of getting a second mortgage is that you will be paying fees (points, closing costs, etc.) based upon a smaller loan amount. This will keep your closing costs down to a minimum.

Q: I refinanced last year. Can I use the same appraisal to get a second mortgage now?

A: That depends. Sometimes lenders will allow a former appraisal to be used if it is current enough, which typically has been within a period of the previous 6 months. Check with your second mortgage lender as policies regarding appraisals will vary from lender to lender.

Q: What is a second mortgage?

A: A second mortgage is what it says - the second loan against a specific piece of property. Consider this: Let's say you have a first mortgage on your home. The value is $200,000 and you have a $120,000 balance left to pay on your mortgage. The $80,000 difference is considered equity, or the part of the home that is an asset to you. If you wish to borrow against that $80,000, you would be taking out a second mortgage on the home in order to do so. In many cases, the interest rate you pay on your second mortgage is lower than many other types of loans and is tax deductible. That is not necessarily true for a car loan or a credit card. (Consult your tax advisor for more information on tax deductibility and second mortgages.)

Do you have a question regarding mortgage refinancing? Although we cannot guarantee to answer every question directly, we will try our best as time allows and we'll post the question and answer here. Send your question to us at info@e-z-second-mortgage.com

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