If you are a homeowner in need of cash, you may be considering a home equity loan or refinancing your existing mortgage and taking cash back. How do you know which option is best for your financial situation? Depending on the length of time you plan on staying in your home there are a number of factors you need to consider when deciding if refinancing or a second mortgage is right for you. Here are several tips to help you decide which option is best for you.

Borrowing Against Your Equity

If you already have a low interest rate on your primary mortgage, a second mortgage could be a better option for cashing out equity in your home. The interest rate you will qualify for on your second mortgage will be slightly higher than your primary mortgage because the second lender assumes more risk; lenders pass this risk on to the borrower in the form of higher interest rates.

Easier Approval for Second Mortgages

It is usually easier to get approved for a second mortgage than it is to refinance your mortgage. The amount you borrow with a second mortgage is much less; however, the interest rate will still be higher because of the risk for the second lender. Remember to factor the costs of each loan into your decision. Both loan options include closing costs and lender fees. If you make your decision solely based on the interest rate you will most likely overpay for your financing.

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