Is Refinancing a First Mortgage the Best Choice?
When you are looking to refinance your home to pay off debts or to cover a big ticket purchase, you have many options. You can head to the bank for a personal loan or line of credit, can turn to your credit cards, or can think about using your home to finance. Today we cover the latter – refinancing a first mortgage – and whether it is the best choice.
Refinancing your first mortgage can be a great way to pay off debt or obtain financing for a number of different projects, be it home renovations or your child’s education. Sometimes, however, it isn’t the best way.
First things first – look at the amount you want to finance. If it is not that much ($30,000 or less is a good starting point), then it may not make sense to blend that debt into a first mortgage that is likely amortized over 20-25 years. That small amount will eventually mean a pile of interest when stretched over such a significant period of time.
Additionally, before refinancing a first mortgage you should also look at the mortgage terms. For example, is it closed, or open with penalties? What are the penalties? What about closing costs – will these be significant if you refinance?
You should factor all of the above as contributing costs to your borrowing more money. In the end, perhaps the cost to borrow is not too bad, in which case it might make sense to refinance. However, for such a small amount, that cost to borrow will usually end up being higher than you anticipated, and thus refinancing a first mortgage may not be the best bet.
So, what other options exist as far as using your home? A second mortgage can make great sense because it doesn’t touch your first – there are no costs to refinance here. Also, usually closing costs on a second mortgage are lower. Although interest on a second mortgage may be higher, structuring it like a loan with a shorter amortization period means you’ll actually pay less interest in the long run.
When it comes to paying off debt or financing big ticket items, your home is a valuable asset to take advantage of, especially if you have significant equity. Often a second mortgage makes sense, and when structured correctly, it can actually save you money.
To find out more about refinancing a first mortgage or a second, please contact DebtCare today. We’ve got you covered: 1-888-890-0888.