If you have a second mortgage, then it will reach a point when refinancing tarts to appear like a good idea.
Competition in the lending industry has worked for the benefit of customers. The interest rates have sharply dropped over recent years.
Read More »What is a second mortgage?
This is a loan you take to purchase a house. Most people never expect to take another loan for the purpose of buying a house. However, sometimes circumstances might force you to seek another loan. In that case, your house will be used as collateral for the second loan.
Types of second house loans
HELOC
This loan gives a homeowner an opportunity to take a loan according to the equity they have in a property.
HELCO varies from a house equity loan in terms of how much money is given. For instance, with HELCO, a lender permits borrowers to make withdrawals whenever they need it.
House equity loans
As the name suggests, these are loans given for the purposes of purchasing homes. Borrowers are given money based on the equity they have in a property. Most of these loans have fixed interest rates. The repayment period often begins at a time stipulated by the lender.
Piggyback loans
A piggyback loan allows buyers to purchase homes using less than 20% of down payment. With a piggyback loan, the bank will fund up to 80% for the property whereas the borrowers will only pay for 10%.
Why should you opt for refinancing for your second house loan?
A second house loan is like an alternative to a personal loan or card debt – all of them might have higher interest rates.
Although a second house loan can be risky, it can come with several advantages such as being able to refinance.
Below are some of the common reasons homeowners go for second house loans:
1. House improvement
You can take a second loan to upgrade your house for resale. This means you can regain all the money you invested or even make some profit.
2. To avoid applying for personal loans
Some people opt to take second house loans in order to avoid higher interest rates that come with personal loans. A second house loan will offer you extra money and avoid the trouble of seeking funds from other sources.
3. Medical expenses
Medical emergencies can drain your finances within a short period. Most people prefer taking a second house loan to avoid the higher interest rates charged on personal loans.
4. Pay for education
Borrowers can also take advantage of second house loans to finance their education or that or their children.
However, it is important to first compare the interest rates with other educational loans before making the final decision.
5. To avoid private house loan insurance
If you want to buy a house minus the required 20% down payment, then the best option would be a piggyback loan – a type of a second house loan. This is meant to save you from paying a premium for a private home loan insurance.
Those who use money for the above reasons may want to use refinancing to save money.
Refinancing your loan can help free up your finances and give you a chance to repay your debts much faster. You may want to consider refinancing your second loan under the following circumstances:
1. Improved credit score
In case your score has increased after taking a second house loan, then refinancing can lower the amount of interest rate.
This will, in turn, reduce the number of monthly repayments and save you a lot of money for the entire period of the loan
2. If you want to change the terms of the loan
Refinancing can be a good idea if you wish to merge the second house loan with the first one or change from a fixed rate to an adjustable one. You can also change the repayment period- say from 30 to 15 years.
3. If you want to sell your house
If you have decided to sell your house, then refinancing can be the best idea. This will allow you to repay the fold the two loans into one and repay them in the shortest time possible.
Steps in refinancing your second house loan
1. Decide whether refinancing a second house loan is the right thing to do
Although interest rates differ, it is common for most banks to charge 3.5% or more on the total amount of the overall house loan – as refinancing fee.
If you don’t have all the required amount ready, then it won’t be the best time to refinance.
2. Know if you qualify for the loan or not
Most lenders will always look at your property value to decide whether to give you a second loan or not.
If your property value is not within the right LTV, then then they won’t give you a second loan. Besides, a lender will also look at other factors such as your debit history, bank statements, and other financial info to decide.
3. Research
It is important to check out on different lenders – to find out their terms and conditions as well as how much interest rates they charge.
You will be surprised that a lender you consider the best has the highest interest rates in the market.
4. Put your finances in order
There are several things that a lender will look at before considering your refinancing request. One of such things is your debt repayment history.
It is therefore important to ensure your credit history is in good shape before making an application.
5. Apply for your refinancing
As soon as you have decided which lender to work with, submit your application, and wait for a call. Prepare any additional information they might request during the call.
