When you are looking at getting some extra money on the existing mortgage for whatever purpose, there are two options you can consider: Taking out a second mortgage or Refinancing your existing mortgage. Refinancing is often stated as one of the most beneficial ways to save money on your home mortgage.
How Refinancing Is Helpful?
There are many things that play a role to decide if refinancing is a good idea. The first thing is to determine what your overall goal is by refinancing. It can answer many questions for you including providing you with these benefits. Why do you want to refinance?
•Do you want to save money on your loan in total?
•Do you want to cut down your terms so that you are paying off your loan sooner?
•Do you just want a lower interest rate or a different type of loan?
•Do you want to borrow more money and still have just one loan?
Is refinancing beneficial than a second mortgage? Yes, because
1. Second mortgages have a higher interest rate; this can be three times higher than your original mortgage. So don't take out a second mortgage, instead just refinance your existing one!
2. Refinancing your existing loan is much better to keep some equity in your home. Not many loan companies will refinance your home back up to 100% of the value without making you take out a second mortgage. You certainly don't want to sell your entire house back to the bank; if you do that you have no safety margin.
3. Sales people like to sell you second mortgages because they get a lot of commission from doing so. Don't believe everything they say, it's likely that they will say anything to get the most commission possible!
Save to spend
Homeowners who refinance will benefit by lowering their monthly payments. A mortgage rate reduction of 1 percentage point can reduce a principal and interest payment by about $62 for every $100,000 financed.
Savings of $62 may not seem like much, but it will ease the burden of living in a recessionary economy. Many of those homeowners will also receive another $60 monthly benefit from the Obama Administration's Making Work Pay tax credit. The extra cash will benefit retailers if consumer spending picks up as a result.
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