2nd Mortgages Refinance: When And Why To Do It

There are many viable options for tapping into a home's equity, including 2nd mortgages and refinancing. Both provide a way to help manage existing debt or get a low-cost loan for other expenses.

"I will likely use my home equity to help finance other investments". This statement was included in a 2007 consumer survey by the Canadian Mortgage and Housing Corporation (CMHC). Forty-one percent of respondents strongly agreed with it. The response to this survey question shows that Canadians are becoming increasingly comfortable taking advantage of the equity they have built in their homes.

Getting a Handle on Debt

Home mortgage refinance products and 2nd mortgages are helping many Canadians get control over high interest debts from credit cards and personal loans. Instead of continuing to pay these high rates, a refinance strategy is often employed to reduce interest charges. Here are two possible scenarios:

• A 2nd mortgage is essentially a low-interest loan that uses your home equity as collateral. Let's say you have $50,000 of equity in your home, and interest rates are low. You could take out a 2nd mortgage to borrow that $50,000 at a low rate, and pay off your high-interest debts. Your interest charges would drop substantially, saving you money every month.

• Cash-out refinance options enable you to pay off your first mortgage and take out a new one at a lower rate. You can borrow more than you owe on your mortgage and use the extra cash for debt consolidation.

Access the Funds Needed for Major Life Expenses

Home mortgage refinance tools give homeowners access to the money they need for major projects or expenses.

A home renovation is a typical example. Renovations, especially in the kitchen and bathroom, can increase the value of a house by a substantial margin. By seeing renovations as an investment that pays off with a better selling price, many homeowners feel that borrowing against their home's equity is a sound financial strategy.

College or university tuition is another expense that many homeowners manage with a second mortgage or home refinance plan. Because they are investing in their children, most homeowners see tuition as a wise use of their resources and are completely comfortable with the idea of borrowing against the value of their homes for this purpose.

Still others will use the proceeds from a cash-out refinance or 2nd mortgage to help with unplanned expenses that may emerge as a result of an accident or emergency. Access to ready cash can be of great assistance during difficult times.

In cases where people have developed very serious problems with debt, perhaps because of an accident or emergency, home equity can offer real security. Even with a 2nd mortgage, refinance options may be available to assist with managing expenses and debt.

Speak to the Experts

No matter what your financial requirements are, it is always wise to speak to a financial or mortgage expert to plan a strategy that meets your needs and that suits your risk tolerance and lifestyle.