Answer

My wife and I currently owe about $180,000 on our home and have a 30-year, fixed-rate mortgage with 7.25% interest. We want to refinance to get a lower rate. The bank quoted us rates for another first mortgage, and also for a second mortgage. They made it sound like the second mortgage is easier, and might be in our benefit (because of no closing costs). What is the difference between refinancing with another first mortgage as opposed to a second mortgage?

You can refinance a home mortgage with a home equity loan instead of a new first mortgage. I did this years ago myself and have refinanced a few times since. Advantages are: low cost (my application fee was only $50) and tax deductibility of interest on loans less than $100,000. A disadvantage may be that your lender will not want to escrow your taxes and property insurance. In this case, you'll need to save up for these payments yourself by setting aside 1/12 of the annual payment each month. Be sure to get a fixed-rate loan so there are no surprises (read: higher payments) in the future.