Question by Annie: Why do people take out a second mortgage instead of refinancing?
Not more to add for this question. Just curious.
Best answer:
Answer by mJc
Usually because the rates for refinancing are higher than their current mortgage interest rate level. It’s never a good idea to get a second mortgage out on your house…
Know better? Leave your own answer in the comments!
It doesn’t make sense to refinance unless the interest rate is lower on the existing mortgage.
Typically there are little or no closing costs on a second mortgage and you still get a low rate.
Refinancing incurs closing costs, which can run into the thousands
Tons of possible reasons such as:
1. lower closing costs
2. ability borrow some money without resetting the existing mortgage to current market rates which might be higher than the fixed rate that the homeowner has locked in.
3. shorter term on the 2nd mortgage so less interest in the long run instead of rolling that balance into a long mortgage of 20 or 30 years
4. Faster loan processing
5. 2nd mortgage avoids private mortgage insurance on first mortgage if the total equity is less than 20% of the value
6. When you pay off a 2nd mortgage you eliminate that monthly payment but if you roll the new debt into the existing mortgage the higher payment is fixed for the life of the loan even if you pay extra and pay down the balance by the original amount.