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Mortgage Refinancing: First? Second? Cash Out? A Home Equity Loan?

by Gil  Mackey
Mortgage Directory Columnist

Let's say you've built up a considerable amount of home equity and now want to tap into it. What are your goals for the money? What kind of mortgage do you have now? The answers to these questions help determine what kind of refinancing you should be considering.

Refinance Your First Mortgage or Take Out a Second?

It's easy to get confused on this issue. When it comes to refinancing, it sometimes makes sense to replace your first mortgage with a new one. However, sometimes it's better to take out a second mortgage. A second mortgage adds a new home loan, another mortgage on top of your existing mortgage, and serves as a home equity loan without affecting the terms of the first mortgage.

When your first mortgage has great terms, a lower interest rate than you could otherwise get today, then you usually want to leave it alone and not refinance. Instead, take out a home equity loan. However, if your first mortgage has a high interest rate, or if you want to convert from an adjustable-rate loan to a fixed-rate loan, then refinancing your first mortgage may be the answer. Either way, you can take cash out of the loan against your home equity.

Home Equity Refinancing

To sum up: if your first mortgage has good terms, leave it. If not, ask your mortgage lender about cash-out refinancing. To take advantage of your home equity without touching your first mortgage, ask your lender about taking out a home equity loan. This comes with options including, a home equity loan with one lump payment or a home equity line of credit. Ask about the differences between the two and examine which best fits your needs before you proceed.

About the Author
Gil Mackey has been a writer and artist for the past twenty years. In addition to freelance writing, he writes for his local paper, and lives with his two children in Nevada.

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