Buying a second home can be pretty tough, so homeowners should be prepared for the complexities involved in refinancing a mortgage on a second home.
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When you refinance a home, you replace your mortgage with a new home loan with different terms. Many people decide to refinance to get better terms -- and, while there are a variety of refinancing options, if you like your mortgage, you probably don’t need to refinance.
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Can you refinance a balloon mortgage? Thankfully, you can. And unless you’re simply rolling in dough, you may be forced to refinance. A balloon mortgage is a home loan with a short term, often 5 - 7 years, after which the rest of the loan is due in one large payment, called a balloon payment. Since most people don’t have this balloon payment sitting in a Swiss bank account somewhere, they usually either refinance the loan, convert the loan to a fixed-rate mortgage, or sell the home before the payment is due.
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If you own an investment property, you might be wondering whether you can refinance it like your primary residence. The answer is yes-- but it might be somewhat more expensive to do. Since investment property home loans are considered high-risk than primary home loans, you may have to jump through a few hoops to get a lender to go through with your refinance.
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A cash-out refinance allows you to take out a mortgage that’s larger than your current home loan-- and you get to keep the difference, in cash. For example, if you own a $400,000 house and owe $150,000 on the current mortgage, you have $250,000 in home equity. If you needed $40,000 to pay an expense like medical bills or a child’s college tuition, you could potentially take out a loan worth $290,000.
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Your mortgage is great, but sometimes you wish you had something a little bit different. Maybe you’d like one that’s a little shorter, or one that had a little bit less interest or perhaps it’s not even about the mortgage itself, you just want to cash out your home’s equity. Before you tell your current mortgage that it’s not it, it’s you, it’s smart to figure out how much it will cost to get into a different loan.
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When you’re considering your first refinance mortgage, you’re full of questions. How much will this cost me? Is it really the right move? What even happens to my equity during this transaction? The good news is that it probably won’t cost as much as you think, but the equity in your home is affected by the type of refinance mortgage you choose.
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Buying your house was definitely the right choice, but now that you’ve been paying on your loan a little while, you’re starting to wonder if you should take advantage of some of the mortgage rates that are being offered to homeowners willing to refinance. After all, you, too, would enjoy a lower monthly payment and some cash in your pocket. But there has to be some sort of catch, right?
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Having a mortgage eventually leads to the inevitable question, “When should I refinance my mortgage?” The good news is that you don’t have to refinance your mortgage ever, as long as you like the terms and your payment is doable. However, there are certain situations that are pretty good reasons to go through the process.
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You’ve had your mortgage a few years now and have already built up some equity. Lately, you’ve been thinking it might be time to consider refinancing. You’re really hoping you’ll get a better rate, maybe shed that mortgage insurance -- the whole thing sounds pretty awesome overall. But how does mortgage refinancing work?
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A cash out refinance uses your home equity to issue a new loan to replace the old one and give you a cash payout. Say your home is valued at $400,000 and your mortgage stands at $250,000 which means that your home equity is $150,000 ($400,000-$250,000). Using your home equity as collateral you can take out a new loan of $320,000, which will cover the $250,000 mortgage and get a cash payment of $70,000 ($320,000-$250,000).
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