Introduction

If you really want to make those home improvements, you only have a couple of options. You may need to make critical choices to secure the funds required for those home improvements. To access some of that equity, you can refinance your first mortgage or obtain a second one.

While both options might make it possible for you to access some funding for your project, only one of them will actually be better for you, depending on your specific situation. Here is the information you need to make that choice.

You can get access to your cash by refinancing your first mortgage. For a good deal, search for a lower interest rate, at least 1% lower than your current one. This may be the best course of action if you can obtain better terms than the ones you currently have.

Mortgage Protection

Suppose you are paying private mortgage insurance and currently have more than 20% of the home's value in equity. You could refinance to remove your PMI and access your equity through a cash-out mortgage. But make sure you don't refinance for more than 80% of your home's realized value if you want to avoid paying PMI. This implies that you must maintain 20% of your equity. In that case, that could be one factor that could aid in your decision.

Get fixed rates for security.

If you have an adjustable-rate mortgage, getting rid of it might be another reason to refinance. Now, many people recognize the risk associated with these mortgages. They are fantastic when times are sound financially, but they can cost you your home when things get tough financially. You can achieve the necessary financial stability by refinancing your first mortgage and using the equity for your home improvement project.

But if you won't be residing there for a long time, refinancing with either a first or a second mortgage might be worthwhile. It will take the average person at least three to five years to start seeing a positive return on their investment due to the high costs associated with refinancing.

Second mortgage options

You will have two choices with a second mortgage: a home equity loan or a home equity line of credit (HELOC). You will receive higher interest rates from both of these than from a first and second mortgage. In addition, the costs associated with financing are the same.

Either one provides you with the money you require for home improvement as a second mortgage. Because home repairs and improvements are tax deductible, the deduction lowers your actual rates. With a HELOC, you can withdraw funds as needed (for a set period) and only pay interest on the amount you use. This gives you more flexibility. This method will save you money if you are unsure whether you need the entire amount of your equity, but use caution and make sure you know how and when it will be amortized.

Discover the best mortgage offer.

A thoughtful way to obtain funds for home improvements is through refinancing or obtaining a second mortgage. Additionally, it increases the value of your house. Anytime you are considering either choice, shop around, get multiple quotes, and then carefully compare the costs (especially) and interest rates.

There are only two options for mortgages for home improvements. Get reasonable faith estimates from your preferred lenders and carefully compare them for rate and closing costs as part of your due diligence. Compare prices just like you would for any other significant purchase. The best mortgage rate you can find will result in the lowest monthly payment, so shop around for the lowest mortgage rates possible. Mortgage rates determine your monthly income. Depending on the lender, refinance mortgage rates can occasionally be slightly higher than purchase mortgage rates.

Look around for the best home equity loans with the best terms if it turns out that a second mortgage home equity line of credit is the best option for you. You should consider the current mortgage rates when making your choice.

Conclusion

Don't be deterred by the additional costs lenders add to refinance loans. Reputable lenders will permit such fees to be applied to closing costs or reimbursed after the loan is funded; at the very least, the current low-interest rates might make the extra price acceptable. By carefully and objectively examining your personal financial situation, you can choose the best mortgage option for your situation. By doing this, you'll ensure that you completely understand your current financial situation.

The bottom line is that the best option for you will depend on your personal objectives and financial situation, but comparing quotes will show you which will best enable you to achieve that objective.