Only Get a Second Mortgage After Reading This!

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Some people dive into applying for a second mortgage without knowing what they are doing. As a result, their process usually takes longer, end in non-approval, or they apply for the wrong type of second mortgage for their situation. These are factors why some people end up getting disappointed and intimidated with the process of getting a second mortgage. With this article, we hope that the application process will be easier for you as you find out what to expect and more!

Definition of a Second Mortgage

A loan taken on top of an existing mortgage and secured by the value of your home is essentially what a second mortgage is. It is called a second mortgage because it only comes second in priority to your primary mortgage. A second mortgage allows you to tap as much as 90% of your home equity depending on the lender you’re talking to and other factors.

Reasons for Getting a Second Mortgage

The most common reasons for people who apply for a second mortgage is to pay for higher education, facilitate debt consolidation, or finance a home renovation. Some do it to avoid paying higher fees associated with refinancing such as when they are in the middle of their mortgage term. Other people choose a second mortgage because they can have an easier time qualifying for it than other types of loans.

Dangers of a Second Mortgage

Just like any other home loan, there are risks associated with a second mortgage for both borrower and lender. The borrower has a higher chance of having issues with payment and may lose his or her home in the process. The lender faces a higher possibility of not getting paid back because money lent via this type of loan only comes second in priority of getting paid as compared to a first mortgage. It is for these reasons that getting a second mortgage from a bank is near impossible for people with a less than stellar credit score and why it may make more sense to approach private lenders rather than approach banks.

Note that interest rates are higher for second mortgages because lenders need to cover the risks they are taking plus extra expenses such as insurance. Penalties and fees are higher for the borrower as well. If you’re applying for a second mortgage, make sure that you read the fine print more than once to avoid possible issues.

Should You Apply for a Second Mortgage?

Second mortgages are great for convenience if you can qualify for them. If you have a lot of home equity, you are in a good position to negotiate better terms same as when you have a desirable credit score. If you use your second mortgage in a smart way, such as for debt consolidation, you can end up saving a lot of money.

Do you need help understanding what benefits you can get from applying for a second mortgage in Canada? We’ll be happy to discuss it with you! Contact us and our team will try their best to give you top-notch mortgage help!

Still Thinking About Getting a Second Mortgage, a HELOC, or a Refinance?

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More homeowners are fast becoming aware of the many ways that they can make their home equity work for them. We’ve talked in the past about how you can pay for a home renovation or consolidate debt by using the equity you’ve built up in your home. The question is, what is the best way to tap into your home equity? Should you refinance? Get a HELOC? Or should you apply for a second mortgage?

Each of the above has its own set of advantages and disadvantages. A HELOC would be great for someone who is not yet sure how much he or she needs. For someone with a concrete plan in place, getting a lump sum via a second mortgage or a refinance may sound great. What could be the best option for you? Let’s take a closer look below.

Get a HELOC

A HELOC allows you to tap into a line of credit as needed, with the limit set to up to 65% of your home’s value. Interest-only payments can be negotiated with your lender and the fees are minimal if not nonexistent. HELOCs are also available for those who’ve garnered at least 20% of their home’s value in equity. The downside is that HELOCs tend to be kinder to people with a good credit score; however, there are private lenders who may consider those with bad credit too. As mentioned earlier, a HELOC is the smart choice if you’re expecting big expenses but not sure yet when and how much money you’ll need because it offers flexibility.

Choose Mortgage Refinance

Refinancing one’s mortgage is a good choice when one is sure of how much money is needed. A mortgage refinance can allow a homeowner to tap as much as 80% of the home’s value and can be given to someone who has at least 20% equity in his or her property. Interest may be fixed rate or variable rate. A downside is that you’ll be charged interest on the entire value whether you actually use the funds or not. Another downside is having to pay prepayment penalties that can go up as high as 3 months of interest. Note that monthly payments are often easier to manage for a refinance because they usually have a set value.

Apply for a Second Mortgage

People who do not qualify or got turned down for a refinance or a HELOC often have better luck applying for a second mortgage. A second mortgage is friendlier to those who don’t have substantial home equity and have a less than desirable credit score. Cons for a second mortgage include having to pay quite a number of fees such as lender’s self-insured fees, legal fees, appraisal fees, and mortgage fees. This makes a second mortgage less attractive for potential borrowers but even so, if you’re someone who’s truly in need of money, a second mortgage is your best bet.

Are you thinking of tapping your home equity? Contact us today so we can help you weigh out which of the above may work best for you.