Second mortgages can be an alternative to a mortgage refinance. How do you determine which is best?
This is not a simple question. There are a lot of factors to take into account, including:
- The interest rate and points you would have to pay to refinance your current mortgage and the the same costs for a second mortgage
- The mortgage insurance requirement on the new first mortgage
- The interest rate, mortgage insurance, and period remaining on the term of the existing first mortgage
- The term you select on the new first mortgage relative to that on the new second mortgage
- How much cash you need
- Your current and future income-tax bracket
- The length of time you expect to have the investment
- The interest rate you can earn on other investments
Like first mortgages, second mortgages can be fixed or variable rate, and can have terms anywhere from one to twenty years. With all these options it may be difficult to decide what the best option is. Try this Cash-Out Refi Versus Second Mortgage Calculator.