Cash-out refi vs. second loan: which is cheaper?

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"My house is worth $400,000. The balance of my 5.5 percent first mortgage is $270,000, and I need $50,000 to pay off debts and make some improvements. I spoke to three mortgage brokers, and all advised me to refinance my first mortgage for about $325,000. I was thinking that I would just take a second mortgage for $50,000, but the brokers all rejected that idea. What am I missing here?" What you are missing is a realization that, in selecting between a cash-out refinance and a second mortgage, the broker's interest and yours may be in conflict. A mortgage broker might pocket a fee of $3,000 or more on a $325,000 cash-out refinance, but only $500 or even less on a $50,000 second mortgage. Borrowers who need cash should select the option that is least costly over the period they expect to be in their house. My calculator 3d pulls together all the factors that determine whether a second mortgage or a cash-out refinance will cost less. The most important of these factors is the interest r...