Taking out a second mortgage may sound easy since you’ve gone through the steps during the first mortgage. Still, people make mistakes with their refinance mortgage. Whatever their options, people should always weigh their capacity to pay back the loan given their unique circumstances.
Is It Time For You to Get a Refinance Mortgage?
No matter what they are saying, like interests rates are lower making the time right for a refinance or something like that, take a hold of yourself. Ask yourself if it is the right time for you to take out a new loan and if you’ve got a very good reason to get one.
The common reasons for taking out refinance mortgage:
1. Debt consolidation
2. Building up home equity
3. Switching mortgage type
4. Big expenses
6. Business investment
Getting a second loan for the sake of cash in your pocket is not a good reason to take out a loan. A one-time fling with cold cash going nowhere except down the drain will be a drag to pay back for another 15 years.
With the second loan, borrowers are just taking a new loan and putting up the same property for collateral. In a way, the new loan provides you the opportunity to make good use of this second break. All along, you must always bear in mind your financial capacity to pay back the loan.
Lenders weigh the risks. They also check out your credit score and review your performance with the previous loan. If you are decided to get a second loan, for good reason, evaluate the options offered by the lenders’.
Your Mortgage Refinance IQ
To avoid the usual mistakes people make, you should:
1. Know how much mortgage you can afford.
2. Study the going rates.
3. Compare these rates with the present one.
4. Shop around for lenders and compare offers.
5. Study the low rate offered.
6. Add up all the fees you’ll be paying.
7. Ask the company if they charge for early loan payment.
The success of your mortgage refinance depends on the choice of mortgage type to suit your circumstances.
The Two Types of Mortgages
With your second mortgage, you will again have to make a choice between a fixed rate mortgage and flexible rate mortgage. Your experience with your first mortgage will determine how you will go.
Fixed Rate and Flexible Rate Mortgages
This type of mortgage offers you stability throughout the loan period. Whether the market goes up or down, you will continue to pay the same monthly payment. This is ideal for wage earners who have fixed sources of income.
The adjustable rate mortgage has its highs and lows and your payment goes with the tide. If rates are low, you make great savings on your monthly payments, and if the trend stays for quite a considerable time, it is an advantage. But when rates shoot up, refinance mortgage holders usually have to shell out more money than they can afford.
There are several types of refinance mortgage packages, but it still pays to go along with the type that will get you your second chance going without becoming overstressed.