Question by PR-mom: Refinancing for debt consolidation — second mortgage benefits?
I’m looking to refinance for debt consolidation. Is it better to refi my first mortgage which is at 5.625% or obtain a second mortgage?
Answer by theshadow01
Depends on how many years you have left on your mortgage.
You have a good rate. Second mortgages usually have very high rates. Have you considered an equity line?
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Even though your first mortgage rate is at 5.625%, you would have to consider your blend rate if you opt for a second mortgage. Either way (HELOC or HELON), your interest rate will be much higher than your current rate, so if your blend rate matches or is better than the current interest rates now, then you might be better off just refinancing your property. You also have to consider how long you plan on staying that the current location know. This will allow you to know if your going to recover the cost of the refinancing. Obviously if you do a HELOC or HELON and there are costs associated with them, you will not recover the cost of those items, unless you factor in the interest of the debt consolidation and what your saving in doing that. If you need clarification, feel free to contact me directly.
2 questions to ask yourself… #1 – how much longer do I plan on living in my home….. and #2 what is the total cost for me to refinance. I would not recommend getting yourself into a 2nd mortgage…. higher rates and your blend rate would be much higher than what you have already. Another question would be is how much MONTHLY debt are you paying off???? Will it impact your household budget to pay off some debt?? What other goals do you have???
The bottom line is this…. 5.625 (forgot to ask if that’s a fixed or adjustable…) 5.625% is a good rate…BUT what is that rate doing for you?? Is it paying off your bills….Can you take your “rate” and pay off all your debt? I know I am being a little ficicious, but I am trying to prove the point that if your bills are strapping you every month then paying a little higher rate with no debt is a lot better than a 1% rate and a lot of debt….