There are a ton of reasons for homeowners to consider a refinance home loan and simply “lowering the mortgage rate” is just one of many ways these types of home loans can save you money. Maybe you need to swap an existing mortgage from an adjustable-rate to a fixed-rate. Maybe you’re looking to configuring a debt consolidation home loan. In these situations and more, the right mortgage refinance can save you boatloads of cash.
Similarly, if you have a higher credit score or a higher income now than you did when you locked in your current mortgage, you may qualify for a better refinance mortgage rate. Before you sign anything, however, it’s important to factor in the mortgage interest tax deduction ramifications of any second mortgage.
All motive, rationale, and aspirations aside, a second mortgage loan is a powerful financial tool, allowing you to harness the equity in your home. Unfortunately, many homeowners simply fail to take advantage of this resource sitting literally underfoot (and technically overhead as well).
Homeowners can save thousands by refinancing their existing mortgages, and many fail to seize the full potential of this existing home equity. But don’t just take our word on it; according to Forbes, mortgage refinance could save the average homeowner $3,000 annually — if not more.
While it’s easy to get caught up in all of the benefits of mortgage refinance, the process can get tricky rather quickly — especially without the proper know-how. Regardless of your refinancing goals, it’s best to speak with an experienced refinance mortgage broker beforehand, to make sure you’re getting the best deal possible.
Let’s make one thing clear right off the bat: Although a second mortgage loan is often an alternative route to a refinance mortgage, a second mortgage is not the same thing as a refinancing home loan. While this option isn’t available to all borrowers, a second mortgage can be a solid choice for those with enough home equity and the right credit score.
As with all types of home loans, a second mortgage of course has its pros and cons. A second mortgage loan (as opposed to a full refinance mortgage) normally includes lowers fees, flexible equity access, and is normally completely independent of the existing first loan. On the negative side, a second mortgage normally involves variables rates, a “mortgage interest only” structure for the first 10 years of the home loan (in most cases), early payoff penalties, and an annual fee.
Now, let’s dive right into second mortgage loans. For all intents and purposes, there are two main types of second mortgages: a home equity loan and a home equity line of credit. These are two very different things. So what is a home equity loan and how does a home equity loan work?
Refinancing a home equity loan allows a homeowner to borrow a fixed amount of cash based on the equity in their home. This lump sum is based on many factors, including but not limited to your loan-to-value ratio and credit history. On the other hand, with a home equity line of credit, your home is used as collateral, allowing you to borrow from a certain amount of credit based on a percentage of your home’s appraisal value.
These two options may sound similar, but there is one key difference between these two mortgage refinance routes. A home equity line of credit usually involves an adjustable rate, whereas home equity loans normally feature a fixed interest rate.
It is important to note that the mortgage interest on this loan may be tax deductible if it is used for property acquisition. Similarly, a household may be better off simply increasing their minimum monthly payments with their existing mortgage rather than refinancing. However, if your lender charges an early payment fee, refinancing may be the more attractive option.
There are second mortgage closing costs and specific home equity loan requirements to consider as well, and with so many variables, choosing a mortgage lender for refinancing is just as crucial as choosing the right second mortgage. If you’re considering a home equity loan or home equity line of credit, your first step is coming in for a consultation. We will listen to your specific plans and then help you make an informed decision about your personal mortgage refinance options.
We will walk you through our methodology, show you exactly how to get a home equity loan, and make sure you’re aware of what to expect during the process.
We have closed on hundreds of secondary mortgages over the past decade and counting. When it comes to your future, bet on experience and proven, executed excellence.
Those looking to consolidate debt or simply utilize their existing home equity to fund home improvements may benefit from an FHA cash out refinance. The FHA cash out refinance option has many advantages over conventional loan refinance programs. For example, with an FHA cash out refinance second mortgage, you can utilize up to 85 percent 4 of the total appraised value of the home (compared to just 80 percent with Fannie Mae or Freddie Mac). This enables borrowers to further tap into their existing home equity and maximize this latent value to pay for improvements, or to shore up a college fund or thin retirement plan.
Cash out refinance does involve closing costs similar to most home loans, and homeowners should expect to pay interest on the money they are taking out on their existing home, but there are many instances when cash out refinance is a useful financial tool.
From an FHA debt consolidation standpoint, it may make economic sense to use a cash out refinance loan to pay off a high-interest credit card debt. The interest rate on your credit card debt is probably higher than the interest rate of a prospective cash out refinance mortgage loan, so using this loan to pay off or consolidate this existing debt is a no-brainer.
Those with an existing FHA-insured loan may want to consider an FHA Streamline refinance mortgage loan. Similar to the FHA loan program, the FHA refinance mortgage loan has reduced credit and underwriting guidelines.
These flexible FHA loan requirements make this option attractive for many. However, it is important to note that a prospective borrower must be up to date on all previous FHA loan payments to qualify for a FHA refinance mortgage loan.
Again, finding the right refinancing option can be a tricky process. Many individuals worry about their current credit hindering them from taking advantage of these nuanced strategies, but there are options to refinance with bad or mediocre credit, and these mortgage refinance rates vary. An experience mortgage lender can help explain your options. Let’s chat!
The market is brimming with numerous types of home loans to choose from and a so-called “combo loan” or “piggyback loan” is another common option. With a combo loan, the total is broken down into two separate loans. The borrowed amount is split at the conforming loan limit and then a second loan is added to this.
But why use two loans rather than one?
A combo loan avoids the jumbo mortgage product with a low conventional loan down payment. Furthermore, a piggyback loan may also allow borrowers to avoid paying PMI. This brings us to another common client question: What does PMI mean?
The PMI is the private mortgage insurance built into many conventional loans and is designed to protect the mortgage lender. Depending on the borrower’s conventional loan credit score and conventional loan down payment, private mortgage insurance may be required. Is a piggyback loan the perfect combo for you? Let’s chat about your options today!
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