When we talk about mortgages, the chances are that you’ve heard of the terms “refinancing” and the “second mortgage.” While refinancing involves changing your existing debt under a different loan agreement, a second mortgage, on the other hand, involves getting a lump sum of money you can use for any purpose. As you can see, both types of mortgages function differently.
In this article, we will share the differences between refinancing and a second mortgage so that you can decide on the best option for you!
Refinancing vs. the second mortgage
Now, let’s discuss the differences between refinancing and a second mortgage. Take note of the following:
- Refinancing: This involves a change in the loan term agreement from an existing debt to a new one under the same or a different lender. This means that your new lender will pay the old lender so that you’ll have a new loan agreement under different terms and conditions. The changes typically include the interest rate, payment schedule, and other terms in the loan agreement.
- Second mortgage: This involves taking a home equity loan or revolving line of credit on top of your first mortgage. It’s a considered lien (which means the right to possess and seize a property) taken out against a property that already has a loan in it. The loaned amount of money can be used for almost anything you want, whether for a big purchase, a home improvement project, or an emergency medical expense.
Here at Wealthy You, we offer a vast array of mortgage solutions that meet your specific financial needs. Whether you’re looking to obtain a home equity loan or refinance a mortgage in Sydney, we’ve got you covered!
Key factors to consider
Now, let’s look at some factors to consider when you’re looking to refinance your home or get a second mortgage. Take note of the following details for your consideration:
- Debt consolidation: Both options are ideal for managing your debts wisely. Refinancing allows you to change your existing mortgage and borrow a certain amount equivalent to your home equity. This is also how your second mortgage works, where you can borrow money to pay off some of your debts. It’s just a matter of seeing which loan can give you a higher amount of money.
- Credit score: It’s important to look at your credit score as this will help determine if you’ll be approved for a refinanced home loan or a second mortgage. If a lender sees that you’ve always been a good payer, you’ll instantly get a loan approval as you’re capable of paying off your loan in the long run.
- Your financial situation: Your financial status is the key factor that will help you decide whether or not you’ll want to refinance your existing loan or get a second mortgage. For instance, if you can no longer afford to pay your monthly contractual payment for your current mortgage, you may consider refinancing to get a better deal. On the other hand, if you have some important expenses, such as medical expenses, you may think of getting a second mortgage and use that money.
At this point, you now know the major differences between refinancing and a second mortgage. Be sure to consider all the valuable information, particularly the key factors discussed above, so that you’ll be able to make the right mortgage decision for your benefit!
Are you looking to refinance your loan or get a second mortgage? You’ve come to the right place, as we’re one of the best mortgage brokers in Sydney, offering a wide range of loan options. Get in touch with us today to see how we can help!