Whether you’re in a bind or considering which may be a good option, don’t be in the dark about deciding between a second mortgage, HELOC or refinancing. Our loan officers are offering advice on things you should know when deciding the direction you should go.
Q: Second mortgage, HELOC or refinance – what’s your advice?
A: “Generally most people take out a second mortgage for several factors. It could be to do home repairs, debt consolidation, help out with college funds, or just to have a safety net for any unexpected expenses.
When it comes to a HELOC (Home Equity Lines of Credit), most lines of credit work as a credit card does. You may use the entire balance, or you may use a partial amount. The Line of Credit is generally good for 10 years, and then either any remaining balance becomes due, (called a balloon payment) or the remaining balance may turn into a fixed payment for a remainder of 15 years. If the remaining balance becomes due, that means that you might have to refinance it again. or you may have to pay off that balance at that time. It will depend on the program and features.
You may also choose a cash-out refinance, which may allow you to consolidate your debts, and could potentially leave you with some additional cash at closing. This is a great route to take, since rates have come down in recent months, and you could potentially lower monthly obligations. What do you think would be the best option for you?”
– Pauline Osofsky, Loan Officer in Brentwood, CA
“Make sure you know the differences in a cash-out refinance versus HELOC.
Every family has different financial needs. Both products are great ones; we just need to explore all options to see which is best suited for the financial goal you have in mind.
I would consider a refinance if there is quite a bit of loans that you want to consolidate. If the interest rate on your first mortgage is high, rates have been dropping, which also makes for a great option. Or, if you know you now have 20% equity in your home or more, and are still paying for PMI/MIP (private mortgage insurance), you can now remove this payment with a refinance as well.
But if you already have a great rate, don’t have PMI/MIP anymore, but need some cash to do upgrades to your home, then I would say a HELOC would be a better option to consider.”
– Laura Zavala, Branch Manager in Longmont, CO
“When taking out a second mortgage, there are a number of questions to be answered. They will help to determine the best route for funds for a down payment.
If you are in need of funds quickly and have equity in your home, a HELOC can often times be a great option, with flexibility beyond the initial draw for funds. You can pay it down, or off, quickly and then have the line open for other items, if needed. It is a quick, low cost option for getting funds for a down payment.
With rates at historic lows, doing a cash-out refi is also something to look into. With the cost of a refinance, the two main questions to answer are:
1.) How long am I going to stay in my property to determine break-even, and,
2.) Do I have debt at higher interest rates than my mortgage that I could pay off and save off my total monthly spend by paying off debt with the cash-out refi?
Both options have unique advantages depending on your specific situation. Consult a Movement Mortgage loan officer to learn more.”
– Kyle Morrissey, Senior Loan Officer in Olathe, KS
When considering taking out a second mortgage, know that you have options. And that these options differentiate in the types of needs they suit best. Take our loan officers’ advice to help make sure you’re in the know on how to weigh out your decision.
For any further questions on more advice, or to get started on an application, contact your local loan officer.