Congratulations! You’ve built equity in your home, and now it’s time to use it.
But when it comes to tapping into that equity you worked hard to build, you may struggle to decide between a Cash-Out Refinance or a Second Lien Mortgage. Both enable you to turn your home equity into cash, but there are differences between each option that you should consider first.
What Is A Cash-Out Refinance?
A Cash-Out Refinance replaces your current mortgage with a new one, often at a lower rate, giving you the difference in cold hard cash. So, at closing, your existing mortgage is paid off, and you get to keep whatever is left over. For example, if you owe $250,000 on your mortgage and refinance for $300,000, you’d receive $50,000 in cash to use however you want (minus closing costs).
What sets a Cash-Out Refinance apart is that it entirely replaces your existing mortgage, meaning you’ll only have one monthly payment as per usual. You’ll get a new interest rate and loan term. It essentially resets your mortgage while allowing you to leverage your equity for cash.
What Is A Second Lien Mortgage?
In contrast, a Second Lien Mortgage is an additional loan taken out on top of your existing mortgage. With a Second Lien, your original mortgage stays exactly as is and you get cash from a new second mortgage that is secured by your home. This means keeping your current interest rate, which may be beneficial if you have one you don’t want to give up.
With a second mortgage, you’ll have two monthly mortgage payments rather than one. A great option for those who may want to avoid a full re-qualification, a Second Lien Mortgage is a flexible way to access your home equity for cash while keeping your existing rate and terms intact. As an added benefit, getting a second mortgage is typically a more streamlined and quick process with less documentation necessary than a full refinance. It’s worth noting that mortgage interest rates are generally much lower than unsecured loan options like personal loans (national averages around 12 to 17 percent), making it a more cost-effective way to get cash.
The right choice for you will largely depend on your current mortgage rate and how much cash you need. The bottom line is, both options allow you to tap into your home’s equity, but they offer different paths to get there.
With a Cash-Out, you get the simplicity of a fresh start. With a Second Lien, you get to preserve your current rate while adding another mortgage payment to your existing one. For more information and guidance on which option suits you best, reach out to one of our Home Loan Experts at 877.715.9908 to get started!
At-A-Glance: Second Lien Mortgage vs. Cash-Out Refinance
| Comparison Point | Cash-Out Refinance | Second Lien Mortgage |
|---|---|---|
| What it does | Replaces your current mortgage with a new, larger loan and gives you the difference in cash. | Adds a new second mortgage on top of your existing first mortgage to access equity as cash. |
| Existing mortgage | Your current mortgage is paid off and replaced. | Your current mortgage stays exactly as it is. |
| Monthly payments | One mortgage payment. | Two mortgage payments: your first mortgage plus the second lien payment. |
| Interest rate | You receive a new interest rate on the full mortgage. | You keep your existing first mortgage rate, and the second lien has its own rate. |
| Loan term | Your mortgage term resets with the new loan. | Your original first mortgage term remains intact, and the second lien has its own term. |
| Process | Full refinance process. | Typically more streamlined and faster, with less documentation than a full refinance. |
| Best fit when | You want one payment and are comfortable replacing your current loan. | You want to preserve your current first mortgage rate and tap equity without refinancing the original loan. |
This comparison is for general informational purposes and is not a commitment to lend.
Loan options, rates, terms, and qualification requirements may vary.
Looking to start saving today on your home loan? Let’s upgrade your mortgage and put money back in your wallet with a new Purchase or Refinance Loan.*
6 Money-Saving Tips To Start Today:
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Pay Off Your Loan Sooner Switch to shorter loan terms to save on interest.* |
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Lower Your Monthly Payment Refinance with longer terms, so more money stays in your wallet.* |
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Consolidate Debt Cash-out to reduce high-interest credit card debt. |
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Pay For Larger Expenses Invest in your home with updates that will yield a higher return should you decide to sell in the future. |
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Get Extra Savings After you have financed a home with us once, save up to $750 on all your future refinances and new home purchase loans with your AmeriWallet Benefits.** |
If you are interested in learning more about how a refinance or new home purchase loan can benefit you, just give us a call at 877.715.9908 or get your instant rate quote here.
Imagine The Possibilities With Your Better Home Loan!
*By refinancing, your total finance charge could be higher over the life of the loan.
**As a member of the AmeriHome family, borrowers are part of the AmeriWallet Rewards program. If you completed a home loan with us once, you will qualify for a $750 lender credit for all of your future refinances or home purchases done with AmeriHome, for any property you own. To qualify for this offer, you must have previously financed the purchase of a home or refinanced with AmeriHome. You have financed with AmeriHome when AmeriHome Mortgage Company, LLC appears on the previous Promissory Note for your loan, and you are listed as a borrower on the Note. Credits will be applied only if your loan closes with AmeriHome. This offer can not be combined with any other offers and is not applicable for FHA Streamline, or VA IRRRL Refinance transactions. Other restrictions may apply. Terms and conditions are subject to change. AmeriWallet Rewards program is subject to termination without notice.
