How to Borrow Against Your Home Equity

by Isaac Baxter.

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You can borrow more money using your equity as collateral in one of two ways:

1. Replace your old mortgage with a larger new one or

2. Get a second mortgage, leaving your first mortgage in place.

There is no formula or rule of thumb to tell you which method is best. The choice must be based on what you plan to do with the extra money, how much you need and how quickly you plan to pay it off. You are borrowing more money, not saving money. Your new monthly payments probably will be higher, and your interest rates also may be higher.

If you need a lot of money over a long period, you could refinance your first mortgage, replacing it with a larger one, or you could get a long-term, fixed-rate second mortgage. Either choice serves the same purpose. To choose one method over the other, compare the refinancing costs and interest rates of each.

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