If you own a home, you surely know that your house is your number one asset. Nothing is as valuable as your home. Your house is your most valuable source of equity and is therefore the first source you can turn to when you need to borrow money or need a loan. While having a house can virtually guarantee you great financing and mortgages, you will do well to be fully educated about the pitfalls of putting your house up as equity while taking a loan. You should do so only if you have a guaranteed, long term stable income. Read on to understand the advantages and shortcomings of refinancing, second mortgages and remortgages.
As you probably already know, there are but three sure ways of leveraging your house for financing. These are refinancing, second mortgages, and remortgages. Refinancing is when an existing loan is annulled and replaced with an alternative loan or financing, which is a separate obligation which can often be under terms that are different from that of the original. Most homeowners know that a home mortgage is the most common way in which refinancing is done. In case the refinancing is done under conditions of, or because of financial difficulties it is also known as debt restructuring.
The other way to leverage your house’s equity is to secure a second mortgage. A second mortgage is a secondary or subsidiary loan or mortgage that is secondary to another pre existing loan against the same house. You are legally allowed to take several loans or mortgages against your property. You are even allowed to take a third or even fourth loan against your property. The disadvantage of taking a second mortgage is that it usually comes with a much higher rate of interest than first mortgages. There are several reasons why homeowners take a second mortgage: they may do so in order to pay off a large amount of debt, or in order to raise a large amount of capital to start a business or for the purpose of investing, or to secure the capital to purchase a new vehicle. They may also take a second mortgage in order to remodel their house or even in order to purchase a new house. That being said, a second mortgage is a potentially risky thing to do unless you are very sure of your long term finances and have several options for repayment. The main disadvantage of second mortgages is that they entail large mortgage fees.
Thirdly, we have remortgages, which are also known as refinancing. Remortgages are a way of paying back the debt of an existing mortgage by acquiring a new mortgage, using the same house or property as collateral. This is usually done in order to obtain a better rate of interest from another lending organization. Remortgaging therefore is a process in which a mortgage is transferred from an existing to another; it does not entail moving home or having to take a second mortgage. There are several reasons why homeowners may choose to remortgage; chief among them is debt consolidation, the need to raise money, and reduction of the size of debt repayments. Remortgaging is almost always beneficial to the homeowner. The main benefit of remortgaging is that it does away with the need to take out a second mortgage.
You will eventually have to choose among the three solutions we have described here in case you are in need of financing. The best thing to do is to find a reputed and trustworthy lender and do your business with them. Good luck.