While you can use a second mortgage to pay off the first mortgage, most experts recommend you don’t. Taking out a second mortgage is risky, and using it to pay off your first mortgage could lead to more financial trouble down the road. For example, if you can’t afford your second mortgage repayments, you risk losing your home. In addition, mortgages have longer loan terms than other loans, so while you have a lower interest rate, you may end up paying more over your loan term. Another reason you should avoid taking out a second mortgage to pay off your existing mortgage is that you not only need to get permission to do so from your current lender, but they will charge you fees to assess your request. Finally, because of the risk associated with a second mortgage, these mortgages will often have higher interest rates and additional costs.
What Should I Do Instead?
Instead of taking out a second mortgage, here are some alternatives:
- Refinance your existing mortgage: refinancing allows you to access the equity in your home, but it also allows you to change your loan terms. While exit fees may apply, you may be able to switch to a loan with offset accounts or redraw features, allowing you to pay off your mortgage early.
- Cash-out refinance: cash-out refinancing allows you to draw cash from the equity in your home. It will increase your loan amount, but you will only have to make one repayment instead of two.
Before taking out a second mortgage to pay off your existing mortgage, consult with the brokers at Mortgage House. We may be able to help find a more beneficial, less risky solution.
