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By Carrie Reeder
You have probably received refinancing offers in the mail or
advertised online touting your ability to pull out your home’s
equity. But a 2nd mortgage, also called an equity loan, may be
a better financing option than refinancing your mortgage. 2nd
mortgages are ideal when you just want to tap into your
equity,
plan to move soon, or are unsure about the amount you want to
borrow.
Tapping Your Equity
Tapping into your home’s equity is best done through a 2nd
mortgage if you already have a low interest loan. Typically,
applying for a 2nd mortgage requires fewer fees than
refinancing a mortgage. 2nd mortgages are also paid back
sooner, so your interest payments are less.
Short-Term Loan
With the costs involved in refinancing, you typically need to
keep the loan for about two years to break even. However, with
a 2nd mortgage you don’t have those fees to worry about
recovering. 2nd mortgages do have minimum balance and early
pay
off fees, but they are significantly less than refinancing
fees.
Flexible Loan Amount
A 2nd mortgage allows you to take out your home’s equity over
the course of several years. The money can be accessed with a
check, ATM card, or direct deposit, depending on how you set
up
your account with the lender. Additionally, you only pay
interest on the money that you have withdrawn.
Higher Approval
Lenders tend to be more lenient with approving 2nd mortgages.
Since the amount usually is less than a traditional loan,
lenders remain confident that they will receive payment. If
you
have had a few credit glitches in the past two years, think
about going with a 2nd mortgage.
2nd Mortgage Mistakes
2nd mortgages aren’t for everyone. You should weigh the cost
of
PMI and payments when choosing your financing options.
Borrowing
more than 80% of your home’s value will subject you to private
mortgage insurance.
Your monthly payments should also be a factor in your
decision.
By taking out equity when refinancing your home, you will have
a
lower payment than if you had both a mortgage and 2nd mortgage
payment. Also, if you refinance in the future, you will have
to
pay off your 2nd mortgage.
About The Author: Carrie Reeder is the owner
www.abcloanguide.com, an informational website about
various types of loans. To view our recommended sources for
2nd
mortgage loans online, visit this page:
www.abcloanguide.com/mortgageloans.shtml
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