Understanding your options
Let's revisit the common refinancing objectives discussed in Chapter 1:
Lower your monthly payment
Shorten your pay-off term
Optimize your loan structure
Consolidate your debt
Fund large, one-time expenses
The first three can only be accomplished with a refinance. The last two-consolidating debt and funding one-time expenses-can be accomplished with either a refinance or a second mortgage.
To decide between a refinance and a second mortgage, compare your mortgage interest rate with current market rates. If you're paying more than what's available, a refinance will lower your overall interest costs. If you're paying less, a second mortgage might be the better option. When the two rates are roughly comparable, many borrowers prefer the efficiency of a refinance-one loan, one monthly payment. It's also worth noting that refinance loans generally carry lower interest rates than second mortgages.
You cannot, unfortunately, take your new debt for a test drive before signing up. Therein lies the importance of making informed decisions; refinancing your mortgage every year, after all, can get expensive. That leads us to the next topic: closing costs.
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