If you are sitting on some home equity, then it may just be that you can use that equity for your current and future financial betterment. You have a couple of options when it comes to cashing out on your home’s equity, and it’s worth it for you to put some time and research into choosing which route is best for your individual needs and circumstances. Should you refinance or take out a second mortgage? Here are some things to take into consideration when making that decision:

Your Current Financing situation

If you currently have a relatively high interest rate and know that you can get a much lower rate, then it makes sense to refinance your bulk mortgage financing into that lower rate. However, if your current financing is relatively low in comparison with the current market rate, it’s likely you would be best off shopping your second mortgage loan options.

Should I Refinance Or Take A 2nd Mortgage? How To Decide

What do you need the Cash for?

You need to outline your short and long term financial goals to determine what, exactly, you want to accomplish with the funds from cashing out on your home’s equity. Long term goals (such as increasing your home’s equity with a major renovation project, for example) are often best addressed with a refinance, which enables you to repay the loan money over a longer period of time. Short terms goals (such as paying off high-interest credit cards, for example) may be best accomplished with a home equity line of credit, which allows you to draw on your home’s equity as needed (and thus only pay on the drawn amount).

One versus Multiple Investors

When you take out a home mortgage, you are in effect borrowing money from an investor (bank or lending institution). As part of the loan qualification process, an investor requires certain things from you, and you must commit to certain obligations to the investor. For example, it’s likely that as part of any mortgage loan contract, you will have to agree not to refinance or sell your home within a specified timeframe. It goes without saying that the more investors you have, the more hoops you will have to jump through in the event that you do want to make changes to your living/financing arrangement. If you prefer the simplicity of only one investor, then a refinance might be your best route. However, if you plan on hanging onto your home and current financing for the foreseeable future, you might benefit most from the option of shopping around for a second mortgage provider.

Which is right for you, a refinance or a second mortgage? Making the right decision can save you thousands of dollars . . . and making the wrong decision can cost you just as much. You can read more about mortgages online and you should definitely get some professional help if you’re still not sure what to do. Keep all of these considerations in mind when choosing between a refinance and a second mortgage.

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