5 FAQs on Second Mortgage Refinancing

April 9, 2010

Author: William M. Davis

Second mortgage refinancing is one of the many options utilized by homeowners to raise funds for various reasons. However, before taking a second mortgage, it is important for homeowners to understand the implications of taking this new loan. As a result, we will look at some of the frequently asked questions put forward by second mortgage seekers.

1. Why do people seek second mortgages?

Homeowners seek second mortgage for various reasons. These reasons range from, refinancing to increase their cash flow, credit rating, home improvement, purchase items such as new cars and to repay credit cards and student loans. Others will seek second mortgage to take advantage on adjustments in interest rates and housing policies. As a result, many homeowners use second mortgage refinancing to change their mortgages from adjustable to fixed rate long-term loans.

2. How different are second mortgages from the original mortgage?

A second mortgage will replace the original mortgage you got during the purchase of the property. As a result, the process of application will be similar and entail the provision of financial documentation. However, second mortgages have many advantages over the first mortgage. With a second mortgage, homeowners are now able to negotiate more favorable interest rate and payment schedules than with a first mortgage.

3. When is the best time to refinance?

Generally, if you have less than 7 – 10 years left on your first mortgage, it is not advised to opt for a second mortgage if it can be avoided. With this small amount left on your original mortgage, it makes no financial sense to take on a new 25-year mortgage. Under these circumstances, it is better to choose other financial assistance programs to meet your needs. With above 10 –15 years left on the original mortgage, there will be now significant difference in the life span of your second mortgage. Therefore, second mortgagers can thus enjoy the benefits of their second mortgage.

4. What interest rates you should look for?

Second mortgage refinancing is only viable if the difference in interest rates of your new second mortgage exceeds the original mortgage by ½ to 1 %. This will have a significant effect on the closing cost of the second mortgage.
In addition, combine the interest rate with the life of the second mortgage to see how you can increase your cash flow during the life of the second mortgage.

5. Can someone get a second mortgage while in Bankruptcy?

It is possible for homeowners to get a second mortgage loan while under bankruptcy protection. However, before homeowners make their application for their second mortgage, they must first receive approval from and provide the lender with your bankruptcy papers. Refinancing under bankruptcy conditions will not offer any protection from your monthly payment obligations as the second mortgage was taken out after the declaration. As a result, you will still be required to make your regular monthly payments. Taking a second mortgage under bankruptcy conditions also improves your credit rating as it shows intent to sort out your finances.