| Loans and Mortgages |
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You can get a consumer loan for what you need either through a consumer loan company or on your credit card. The problem here is the higher interest rate. If you don’t pay the loan off they come after you, not your house and new basement. From the lender’s standpoint there is less security for the loan, your promise to pay. That’s why they get the higher interest. However, for smaller remodeling projects that you plan to pay off in just a few months a consumer loan or credit card purchase is typically easier to get than refinancing your house. A mortgage is a loan that uses real estate as security. If you don’t pay they come and take your house. Because the security typically is worth more than the loan amount, the lender’s risk is reduced. That means the interest rate charged is lower than with higher-risk consumer loans. Remodeling Words A mortgage is agreement between a lender and a buyer using real property as security for the loan. The primary mortgage against your home, the one you probably signed when you bought your house, is called the first mortgage. If you want to use some of the equity in your home as collateral for your basement remodel you can refinance your first mortgage or get a second mortgage. What’s the difference? You’ll be paying off both mortgages simultaneously. It’s just that if you default on your mortgages, the lender that holds your first mortgage gets paid off first. So interest rates on a second mortgage may be slightly higher than on the first because of the lender’s higher risk. The good news is that the increased value of your home with a newly finished basement typically can be the equity you need to fund it. Should you refinance your first mortgage or get a second mortgage? Good question! The answer depends on the equity you now have in your home, the value of your remodel, how much you need to get the job done, and current mortgage rates. You can start your search for the best answer by talking with your current mortgage lender.
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