Home Equity vs Refinance

1. Second Mortgages usually have an Interest Rate that is twice or even three times as high as your First Mortgage Rate. You can refinance instead and keep a very low rate. In the long run a second mortgage will just cost you money in interest charges.
2. Home Equity Lines of Credit are designed for mortgage account executives (salespeople) to sell you on using it like a credit card attached to your home. They will try to convince you to use it over and over again.
3. A Refinance Loan is better for the equity in your home. Very few companies will refinance your home at 100% of it’s value without forcing you to take out a second mortgage. You don’t want to use 100% of your equity because that means you no longer have that equity to fall back on in emergency situations.
4. Second Mortgages and Home Equity lines of credit are designed to provide account executives (salespeople) with another tool to sway you into putting another commission in their pocket.
5. Your equity is a precious thing and should not be used for unnecessary add ons or impulse buys. If you don’t need it and there is even a slight chance you can’t afford it, then don’t get a second mortgage to buy it.
   The only reason that I would ever recommend a second mortgage or a home equity line of credit is in an emergency situation. Only when there is no other option and you must take out a loan would I recommend either one of these options.

The right time to Refinance

It's the eternal question for homeowners: When is the right time to refinance? While there are many guidelines, generally your own Financial Situation dictates when it is time to close on a new mortgage. There are varieties of refinance "triggers" that motivate homeowners. Here are a few of the more general ones:

Refinancing to save money

The majority of Mortgage Refinancing is done to cut costs. This is especially relevant when interest rates are dropping. A Home Refinancing may result in either Lower Monthly Payments, or a shorter payment term on your mortgage. Both could save you money on Long-Term Interest. Keep a watchful eye on interest rates, and use a Mortgage Calculator to see how much a refinance can save you. Make sure that you take into account your closing costs. This may affect your decision if you're looking for long-term savings.

Loan Improvement

Sometimes, a refinance is triggered by a homeowner's need to get out of his current loan. This is often the case with someone who has a Short-term Balloon Loan or an Adjustable-Rate Mortgage(ARM). With a balloon loan, the entire balance is due at the end of the "balloon" term-typically five to seven years. At this point, unless a homeowner hits it big with the lottery, a Mortgage Refinancing may be necessary.

A borrower with an Adjustable Rate Mortgage(ARM) may refinance when his or her Mortgage Rate "adjusts" after the teaser period to a significantly higher number. Other people choose a Mortgage Refinance to replace an ARM with a Fixed Rate or FRM if they prefer the certainty that comes with a Fixed-Rate Mortgage. And if Interest Rates are rising, it's often a good idea to lock in a Fixed Rate before Interest Rates soar out of control. Ultimately, determining the Best time to Refinance comes down to crunching the numbers and assessing your own time parameters. When all the benefits-both in terms of the bottom-line and peace of mind-outweigh the hassles of refinancing, you know the time is right.