Integrated Financial Systems

Have you thought about refinancing a second mortgage, how to do it and if it’s the right thing for you to do?

About Refinancing Second Mortgages

Though refinancing may not be right for everyone, if you have a second mortgage on your home, you’d do well to consider refinancing if this could work to your advantage. You should base your decision to refinance on your individual situation and needs.

Refinancing is a good financial move for some home owners, but for others, it is not. Putting it simply, it depends on the amount you owe on your home, how much the house is worth, and whether or not you plan to make it your long term home. Loan terms, cost of the refinance, and your reasons behind it should also play a part in your decision.

Some valid reasons to refinance a second mortgage could be:

To reduce your monthly payments.
To merge your first and second mortgage into one loan and make one convenient payment.
To eliminate private mortgage insurance, which can be expensive and unnecessary.
To acquire an optimal interest rate.
To change your current loan terms to match your current financial position.

You should base your decision to refinance only on your own needs and situation. Before signing the papers, be confident and satisfied with your choice of mortgage refinancing, as there may be no going back once the paperwork is signed. If you have any doubts therefore, ask! It’s also a big market with lots of competition, so companies may have lot’s of room for movement. Some companies are offering much better rates now just so they can try to survive against old and new competition. Remember, ‘you don’t ask, you don’t get.’ Don’t ask and you could find it hard to cope with monthly payments. Ask for improved conditions and you may get the perfect deal.

The mortgage process can be a daunting task. Interest rates, charges, terms, and conditions; It can be a lot to take in all at once. When there is no one on your side, how do you know that the lender isn’t taking advantage of you? Your best defence against being taken advantage of by a mortgage broker or lender is to be well informed. Learn the basics and find out what to look for before singing any contract. Here’s what you need to be able to grasp before signing along the dotted line.

The interest rate you choose is used to determine how your payments are calculated. If you choose a fixed rate of interest, your monthly payment will always stay the same. If you choose a mortgage with a variable interest rate, the payments will change from one year to the next. The problem with a variable interest rate mortgage is that your monthly payment could go through the roof when interest rates go up. If you do decide to go with a variable rate mortgage, find out if there is a cap on how high the rates can go to. Some lenders do provide caps which limit the amount the interest can go up to at one time. Other caps limit the amount the interest rate can go up to over the whole duration of the mortgage. If these options are not available with the company you are dealing with, you might want to reconsider signing with them.

Be aware!
Mortgage lenders sometimes incur a prepayment penalty. This is a fee you must pay if the mortgage is paid off before the end of the term. This penalty is in place to discourage refinancing. If in time you need to sell your home and your mortgage scheme included a prepayment penalty, you will be obliged to pay this penalty to the lender before selling the property. If the prospective lender insists on including a prepayment penalty, shop elsewhere.

Choosing a short term mortgage, like a 10 or 15 year plan, will make your mortgage payment higher but it will be with lower interest rates. Also, with a short term plan, you will build equity in your home much more quickly. If looking for a mortgage with the lowest monthly payments, you will need to choose the longest term plan available.

Remember – ask and you might get!