Remortgage vs Refinance vs 2nd Mortgage

Remortgage. Refinance. Second mortgage. These all sound like you didn’t do it right the first time, don’t they? In reality, circumstances change. Interest rates go down. Unexpected expenses pop up. Money dries up at exactly the wrong time. In any case, you’re either paying too much on your mortgage, or you just need money and your equity is the easiest way to get it. What do you need to consider?

First off, let’s define the terms. A refinance is when your current lender agrees to alter the terms of your original mortgage, in order to lower the interest rate, increase the amount, or extend the term of the loan. A remortgage is  essentially the same thing, but rather than trying to convince your original lender that they should reduce their profits by giving you better terms, you go to a different lender and replace the first mortgage with a new one. A second mortgage is exactly what it sounds like: the first mortgage remains in place and a second one is added on to it.

So, what are the advantages and disadvantages of each?

A second mortgage tends to be the most expensive because the lender is behind the first lien holder in making a claim on the property, should you stop paying your bills, and as such must charge you a higher interest rate. It’s most appropriate when the amount you need to take out is small relative to the remaining debt owed, or when interest rates have increased since your original mortgage. A refinance is most appropriate when you have a good working relationship with the bank your current mortgage is at and believe they’ll give you a good deal in order to keep your business. A remortgage, of course, is used when you can’t stand the bank you’re at and would like to go elsewhere, or when you just believe that a different bank will give you a better deal.

You can read up on all types of financing (and much, much more) at Twenties Retirement.