How is a Second Mortgage Different from a HELOC?

Owning a home means having the benefit of having home equity that you can tap into should the need arise. In the event of a huge financial expense that you can’t cover with just your savings, you can tap into your home equity. Examples of these high-ticket expenses are an extensive car repair, some expensive medical procedures that are not covered by insurance, home improvement and home renovation, or paying for higher education. In Canada, some of the most popular ways that homeowners use to tap into their home equity are second mortgages and HELOCs. So, how does a HELOC differ from a second mortgage and which one may be better for you?

Let’s Understand Home Equity

Home equity is your home’s current value minus any debt you have on it or remaining mortgage you still owe from your lender. This means that if your home is valued at $1million and you still owe $400,000, your home equity is at $600,000 which is 60% of your home’ value. Having home equity that is above 20% of the home’s value typically qualifies for both a second mortgage and a HELOC. Most lenders will also allow you to tap up to about 80% of that equity. For $600,000, that means you can access as much as $480,000.

What is a Second Mortgage?

A second mortgage is a home equity loan that is taken on top of having a primary mortgage. It comes as second in priority in terms of payment if you ever default and so carries more risk for non-payment. This is why second mortgages charge a higher interest than a primary mortgage. Second mortgages are dispersed as a lump sum and repaid in installments with a set sum according to terms until the entire debt and interest are paid in full.

What Is A HELOC?

A HELOC, or a home equity line of credit, involves the use of home equity as collateral for the loan but the loaned amount is made available as a revolving credit, unlike a second mortgage. With a HELOC, the homeowner is given access to funds that they can use and reuse as needed, much like having a credit card with a really high credit limit. The homeowner can take out as much as needed or even just a little amount at a time as long as the credit limit isn’t exceeded. The monthly payments are typically just based on the amount that is used up and interest is only charged for the same. With a HELOC, you can also reuse the funds after you’ve paid them back as long as the HELOC is still active. This is the most flexible option when it comes to borrowing against your home equity although may not work well for those with shopping addiction or uncontrollable spending.

How is a Second Mortgage Different from a HELOC?

Both second mortgages and HELOCs are extremely helpful for homeowners who need access to large sums of cash. Both have risks and pros that should be weighed out prior to deciding which one to get. Note that with both home loans, you will risk losing your home if you fail to honor the terms or make payments. It is best to speak to a mortgage professional to get an in-depth insight on how they differ and what may work better for you. If you’re planning to get a HELOC or apply for a second mortgage in Canada, do not hesitate to contact us.

 

Planning on Getting a Second Mortgage or Applying for a HELOC? Read This!

If you’re a homeowner, it may have crossed your mind to use your home equity to get a second mortgage or perhaps apply for a HELOC; but how possible is it for you to get one? Are you sure that you can get HELOC or second mortgage approval with the recent changes in interest rates and mortgage rules? Do you know that getting a HELOC is not the same as applying for a second mortgage because they are entirely different types of home equity loans? We’ll talk about what you have to know regarding HELOCs and second mortgages in this write-up.

Both Second Mortgages and HELOCs are Secured Loans

Your home equity serves as the loan security or collateral when you decide to go for a second mortgage or a HELOC. The difference is in how you can access the funds. With a second mortgage, you can get the funds as a lump sum while with a HELOC, you can access as little or as much as the whole predetermined amount for a set span of time. With this difference, payment for a HELOC usually fluctuates on a monthly basis while payment for a second mortgage is a fixed monthly rate.

Missing Payments Can Mean Losing Your Home

The terms of both second mortgages and HELOCs state that the lender has a right to your home equity if you fail to make payments. To access your equity, the lender will liquidate your home. With this in mind, you have to be extra careful before signing up for these loans or risk losing your home if you default.

The Most Common Reason for Both Remains to Be Home Improvement

Most people get a HELOC or a second mortgage to finance home improvement or home renovation. Lately, more people are using HELOCs for debt consolidation too.

HELOCs and Second Mortgages Need Financial Planning

Because missing payments on second mortgages and HELOCs can have serious effects on your finances and life, you have to at least have a general idea of your cash flow so that you’ll be able to manage payments and other expenses in the future. Know that just because second mortgages and HELOCs are easier to apply for than primary mortgages do not mean that repercussions for nonpayment are less severe.

Be Ready for Pitfalls

HELOCs and second mortgages come with pitfalls too. One wrong decision can mean financial ruin more so if you simply decide to get one without guidance from mortgage professionals. For instance, a lot of people have the wrong notion that they can max out their home equity and things should be fine but that is not the case. Note that the bigger the amount you take out from your home equity, the bigger the interest rate and consequences for nonpayment and delayed payment will be.

Are you ready to get a second mortgage or are you planning to apply for a HELOC? Contact us today so that you can get answers for your home equity loan questions straight from mortgage professionals!

Tips and Information About Getting A Second Mortgage

A second mortgage is a different thing from a first mortgage as well as refinancing of first mortgages. Unlike for those two, private loan investors and companies need to consider the equity built in the home prior to approving a second mortgage; with lesser consideration given to income source and credit score as well. This also holds true for banks and institutional lenders although compared to private lenders, they are still a lot stricter with regards to credit score and having regular employment.

Applying for a Second Mortgage

Most people apply for a second mortgage to pay off their existing debts in a process called debt consolidation. Some people apply for a second mortgage with the intent of using the money for a home renovation or paying for higher education. A small but significant portion applies for a second mortgage to use as an emergency fund. The beauty of a second mortgage is that lenders often do not ask or need to know what the loan is for as long as their requirements are met.

Cost of a Second Mortgage

Do you know that in Canada, homeowners can access as much as 80% to 90% of their home equity through a second mortgage? For homeowners who are in need of cash, that is a good amount of money that can change lives if used wisely more so that it comes at a cost of about 5% to 15% in fees and interest. Is that amount too much? Not really if you compare it to the interest and fees of personal loans and credit card loans. You’ll save upwards of half the fees and interest if you decide to use a second mortgage instead of other loans. Now, comparing to a primary mortgage, that money may seem like a lot but also note that lenders face higher risks of nonpayment and default for second mortgages. The fees are truly justified.

Paying for a Second Mortgage

Paying for a second mortgage is usually straightforward. You agree to a monthly payment that usually just covers the interest. There are prepayment options too and you can avail of that when discussed with your lender.

What happens after you’ve reached the term of your loan? Are you obligated to full right then and there? Most of the time, you’ll have the option to renew your loan for another year. If you do not wish to do so, then simply follow the payment terms laid out when you first got approved for your second mortgage.

Facts About Second Mortgages

Below is a summary of details that usually apply for a second mortgage:

  • You may use up to 90% of your home equity
  • Different lenders follow different procedures and have different requirements. It is possible to get approved by another lender even when turned down by a bank.
  • Most second mortgages offer 1-year terms and usually charge for the interest-only before the payment term.
  • Interest rates for second mortgages begin at the prime rate.

Do you want to apply for a second mortgage? Fill up this contact us form and we’ll get back to you as soon as possible. We’d be happy to address any questions you may have about getting a second mortgage.

 

The Most Popular Reasons to Get a Home Equity Loan in Canada

More Canadians are getting home equity loans in recent years to make use of rising home prices and low-interest rates but these are not the only reasons why they are tapping into their home equity. Below is a compilation of the top reasons why people get a home equity loan in Canada.

Home Equity for Debt Consolidation

Getting a debt consolidation loan tops the list of uses for home equity in Canada. People go for it because loans that are tied to residential equity have a significantly lower interest rate as compared to other types of loans. By using home equity for debt consolidation, homeowners can manage their various debts faster as well as save money on interest.

Home Equity for Paying CRA Tax Money

A borrower who owes back taxes will not be lent new loans by banks unless the homeowner applies for a loan backed by their home. A short-term loan like this can help someone sort out their taxes and manage their financial issues.

Home Equity Loan for Spousal Buyout

A divorce often means dividing conjugal assets so that each party walks away with their half. This isn’t very easy to do when most of the couple’s assets are tied to their property. A home equity loan will allow one spouse to keep the family home and pay-off the other party for a clean break.

Home Equity for Home Renovation

A huge percentage of home equity loans taken in recent years were made for the purpose of funding home renovations. By using home equity for home renovation, a homeowner can have access to funds to improve their home and increase their property’s value. By doing this, it will be easier to refinance mortgage later or take out some other loan when needed.

Home Equity for Business Loan

It takes money to start or expand a business. However, it is often not easy to sway investors to want to put their money in someone else’s business. By tapping home equity for this purpose, a homeowner can take advantage of using what he or she already has and with friendlier payment terms to as compared to other business-related loans.

Home Equity Loan for Big Purchases

Trying to purchase a home or a car with a loan when you’re self-employed can be very challenging in Canada. Luckily, homeowners can take advantage of the different types of home equity loans to buy a home, a rental property, or a dream car. This is great news for the approximately 15% of Canadians who are self-employed!

Home Equity for Construction Loan

Building a house from the ground up is very expensive. The good news is that if you’re building your second home you can make use of your current home’s value to help fund the construction.

If you’re interested to apply for a home equity loan in Canada, you’re at the right website! Contact us and we’ll walk you through with what you need to know and help you get your loan approved!

Best Home Equity Loan Options for You

Living on a fixed income can be quite limiting. You face challenges that hamper opportunities to enjoy life, create a better life for yourself, afford unexpected huge expenses such as medical emergencies and so on. The good news is, you’re sitting on a lot of money if you own your home or have built quite a sizable home equity. This is money that you can borrow to pay for expenses that can’t be covered by your savings or fixed income. Find out more about how you can make your home equity work for you below!

What is a Home Equity Loan?

Your home equity is the value that you own in your home. It is the difference between your home’s current market value and what you still owe. If your home is currently worth $700,000 and you still owe $35,000, then you have a whopping $665,000 home equity!

Although you may not be able to sell your home equity, you can certainly build on it over time. Because it is the value that you own, you can use it as collateral to take out a home equity loan such as a second mortgage or a home equity line of credit.

A home equity loan is a type of loan that uses the equity you’ve built up in your home as collateral. Because it is a secured loan, borrowers often enjoy lower interest rates and larger loan limits as compared to unsecured loans. Depending on the lender and the home equity loan option you choose, you may also enjoy flexible payment schemes.

What is a Second Mortgage?

A second mortgage is a home equity loan that you take on top of a primary mortgage. It comes with a set schedule of payment as well as penalties for inability to pay on time. Note that a second mortgage does not erase or nullify a primary mortgage but is another mortgage that you have to pay off. It can be better than other types of loans because the requirements are often lenient towards people with bad credit or those with low income. The money you borrow will be released as a lump sum which makes this type of home equity loan perfect for a one-time big expense such as funding a home renovation.

What is a HELOC?

A home equity line of credit gives you a line of credit with a set limit from which you can borrow as much or as little as you need. It also allows you to reborrow the money if you pay it back. Unlike a second mortgage, a HELOC often requires a reliable income and relatively good credit. A HELOC is best for recurrent significant expenses such as paying for college tuition or hospital treatments.

The best type of home equity loan for you largely depends on your financial needs and your means to pay. If you’re undecided whether to apply for a second mortgage or apply for a HELOC, contact us and we’ll be glad to discuss how to best use your home equity.

Will a HELOC Prevent You from Getting a Second Mortgage?

It may be easy for a lot of homeowners to apply for a second mortgage but those who have an existing HELOC may have a bit of a challenge. A few months ago, the leading HELOC provider in Canada, Toronto-Dominion Bank changed their rules for those applying for a second mortgage. Part of their new changes is that they now require people with a HELOC who are applying for second mortgage and other financing methods to prove that they can pay. The proof that they want is not based on the actual balance rather it is based on a theoretical monthly limit. A lot of lenders are now implementing this change including the Royal Bank of Canada.

Industry experts think that the change discussed above is going to have a significant impact on both rental and second home markets as well as may affect those who want to borrow money using their home equity.

One Small Step Equals Huge Changes

With the above, getting a new loan or another second mortgage means that the borrower will be subjected to a stress test – a test that will determine what credit limit can work for you for a HELOC. The lender will add an assumed payment (that is based on the government’s benchmark) to your application and determine your capacity to pay from there. This means that when you decide to get a HELOC in 2019 onwards, banks will subject you under a stress test. This will not affect those who will be renewing their mortgage. This is only meant for those who have an existing HELOC and wishes to get another second mortgage.

What the Numbers Say

With the above changes, someone who has a HELOC of $200,000 need to prove that he or she has the capacity to pay $1,202 per month based on current rates. This will no doubt negatively affect those who are turning to a second mortgage for financial elbow room. The good news is that it looks like only major banks are going to implement the new policy for 2019, which means that other lenders may be more forgiving and easier to borrow from.

Is This a Sign of Bank Hypocrisy?

It is difficult to say but the fact is, the banking industry generates a lot of income from HELOCs to the point that borrowers are actually offered a HELOC without even applying if the bank deems them to be credit worthy. It seems to be an unfair system when the bank persuades you to get a HELOC and then proceeds to fence you in once you’ve signed up for it. The situation is as such that renewing a mortgage or even switching from one bank to another comes with a lot of challenges. Note that banks often push for the maximum HELOC amount when a borrower files an application, a practice that some industry insider deem shady because it serves to trap borrowers in debts that they don’t truly need.

Is There a Solution?

If you have an existing HELOC, applying for a second mortgage from private mortgage lenders and other institutions might be a better option than trying to borrow from banks. Contact us and let’s discuss what financial options may work for you.

 

8 Common Questions About A Second Mortgage

It is nearly impossible to have never heard of a second mortgage these days. Perhaps you’ve heard enough to start wondering why more people are getting a second mortgage or getting curious to know how getting a second mortgage may benefit you. We’ve compiled the answers to the most frequently asked questions regarding second mortgages here.

Are There Types of Second Mortgages?

There are several types. The most common ones are HELOCs and home equity loans. A second mortgage that is given as a lump sum is categorized under general home equity loan while one that is given as a revolving line of credit is called a HELOC.

What Collateral is Used?

The value that you own in your home, or your home equity, is the collateral used in a second mortgage. This means that not paying can result to foreclosure so you better be sure to read the terms before getting one.

What Are the Common Uses for a Second Mortgage?

Debt consolidation of high-interest debts and paying for home renovation are the most common reasons cited by those who apply for a second mortgage.

Are Interest-Only Payments Possible?

Yes, paying for just the interest on a monthly basis is possible for some types of second mortgages. This is a useful feature to look for when you’re planning to pay for the loan after getting an expected huge windfall or after you’ve sold the home.

How Can You Use Funds from a Second Mortgage?

Once approved for a second mortgage, you are free to use the funds however way you want. You can use it to invest in a business, invest on the home by paying for renovations, pay for expensive tuition fee, finance a lavish wedding or grand vacation, consolidate debt, and more.

Is There a Limit to the Amount That Can Be Borrowed?

Generally speaking, you may borrow up to 80% of the value of the home equity that you’ve built up. This means that if you have $100,000 home equity, you can access as much as $80,000 in the form of a second mortgage.

Are There Fees to Pay?

Besides the interest, you’re expected to pay certain fees depending on which of the types of second mortgages you’ve applied for. This is best discussed with a mortgage professional so you can have a better grasp of what fees you can expect and how much.

Are There Differences in Interest Rates?

The different types of second mortgages come with different interest rates. The biggest factor affecting this is the risk that the lender is taking by lending money to you. There are also instances that the same types of second mortgages will have varying interest depending on the terms set by the lender. For this reason, make sure to compare interest rates before finalizing your second mortgage application.

Do you have more questions about getting a second mortgage? Feel free to contact us so that we can address your queries. Our mortgage professionals will be happy to respond to additional questions you may have about applying for a second mortgage.

 

Get to Know Home Equity Loans in Canada

Financial stress is a real challenge for many homeowners in Canada. There are home expenses, work, living expenses, possible maintenance medications, and other expensive needs. No wonder homeowners are getting more interested with the idea of tapping their home equity to give them financial relief when needed. But how can home equity be used this way? What makes this possible?

Using Home Equity for a Loan

Home equity is the value that a homeowner owns in a home. If a homeowner has been making payments towards a home, then over time, a larger portion of the home is truly owned by the homeowner. This value can be computed as the difference between existing debts and the home’s current market value.

If there has been a recent development in the area, then the home equity could be a lot larger than the sum paid over the years. Home equity loans allow homeowners to use their home equity for expenses that they cannot cover with their income or savings.

A home equity loan in Canada means any type of loan that makes use of the home’s equity as collateral. Compared to unsecured loans such as credit card loans, home equity loans have higher limits and lower interest rates plus offer better payment options.

To get a home equity loan in Canada, you can either approach a mortgage professional to connect you with private lenders or go to banks in your area. Note that applying to banks will often require more work as well as a great credit score whether you’ll be applying for a second mortgage or a HELOC.

Types of Home Equity Loans

Home equity loans are usually divided into reverse mortgage, second mortgage, and HELOC. We will only tackle HELOCs and second mortgages in this article.

A second mortgage is a home equity loan that is second in position to a primary mortgage. In the event that the homeowner fails to make payments and the home goes to foreclosure and sold, the primary mortgage will be the first mortgage to get paid followed by the second mortgage. This is why second mortgages have higher interest than primary mortgages. People who have a bruised credit or in a financial bind have an easier time getting a second mortgage than to qualify for a personal loan same as those with an excellent credit score; hence, homeowners opt for a second mortgage when they need extra funds. Funds are released as a lump sum for a second mortgage.

A HELOC is a home equity loan where a borrower is given a revolving credit with a certain limit. The funds can be accessed when needed and can be re-accessed after payment until the terms of the loan are up. Interest is only charged for the actual amount borrowed for any given month. Generally speaking, a HELOC is the most challenging to qualify for among all the types of home equity loans. There is a possibility that you can still get a HELOC even with a bruised credit if you borrow from private lenders with the help of mortgage professionals.

Do you want to know more about second mortgages and HELOCs? Are you still on the fence about applying for a home equity loan? Contact us and our mortgage professionals will be happy to answer your questions.

 

Don’t Get Home Equity Loan in Canada Until You’ve Read This

Getting a home equity loan is fast becoming the norm for homeowners who live on a fixed income and are either near retirement or already in retirement. Financial stress is real for those with already stretched finances. No wonder tapping into one’s home equity is perceived as a very attractive financial solution for those who’ve built up their home equity and now want to enjoy the fruits of what they’ve worked hard for. The question is, is it truly a good idea to get a home equity loan in Canada? Are there pitfalls to watch out for and are other types of home equity loans better than others?

What is Home Equity?

Your home equity is the value that you currently own in your home. You can estimate your home equity by subtracting any amount that you owe on your home from your property’s current market value. This means that if you still owe $15,000 and your home’s current market value is $600,000, then you have a whopping home equity of $585,000. That’s a nest of money that you can use to improve your life or use for unexpected big expenses.

What is a Home Equity Loan?

In Canada, a home equity loan is a generalized term that applies to any secured loan you take that uses your home’s equity as collateral. Because it is a secured loan, you can enjoy higher loan limits and lower interest rates than other loans such as a personal loan from a bank. It is also easier to get approved for a home equity loan than a traditional bank loan more so if your credit score is not as desirable as you want it to be or if your source of income is not as stable as banks prefer. Generally speaking, home equity loans also offer flexible repayment options but you may have to really look for certain private lenders to enjoy this. If assisted by mortgage professionals, you have higher chances of getting a home equity loan in Canada from private lenders. You can also try to apply for one from banks if you can meet their qualifying requirements.

Types of Home Equity Loans

Home equity loans come in various forms. Generally, a lump sum falls under a second mortgage while a revolving line of credit is referred to as a HELOC. There are pros and cons for each of the types of home equity loans. A second mortgage may be great for funding a really huge expense but repayment may be a bit too heavy for most people’s wallets. A HELOC is more flexible and can be a great alternative for those with recurring expenses but can also prove to be a source of temptation for those who have an issue controlling their spending.

Get a Home Equity Loan in Canada Fast

It is best to consult with mortgage professionals to determine which home equity loan option is right for your needs and ability to pay. This will also save you time and money plus minimize the chances of getting rejected. Sometimes, the fastest way is the slow but most efficient way that will lead to better chances of getting approval. Contact us at Mortgage Central Canada if you’re ready to apply for a home equity loan.

 

The Second Mortgage Checklist You Need to Read

Do you know that now is one of the best times to get a second mortgage in Canada despite concerns over the contrary? The risks are not worth sweating over if you take the time to understand what a second mortgage is and only decide after identifying the best type of second mortgage that may work for you.

Second Mortgage Primer

A home loan that you take which is secured by your home equity is the definition of a second mortgage. It is called as such because unlike the primary mortgage which gets first priority in the event of you defaulting payment, it only comes second.

A second mortgage can allow you to access a maximum of 80% to 90% of your home equity. The maximum limit is determined by the type of loan you’ll apply for as well as how much the lender will approve knowing that most people who get a second mortgage simply want to avoid the fees associated with refinancing and the fees incurred by breaking a current mortgage.

Why Apply for a Second Mortgage?

Most people cite debt consolidation, home renovation, or higher education when asked for a reason why they’re applying for a second mortgage. In a nutshell, a second mortgage gives a homeowner more elbow room to maneuver in when fixing his or her finances in the long run.

Types of Second Mortgages

There used to be a time when second mortgages were perceived as a desperate choice for financially desperate people. Thankfully, that misconception has been cleared up. More people understand now that second mortgages come in various forms that have their own set of advantages and disadvantages.

A HELOC is a great choice for someone who needs recurring access to a significant amount of money because it allows the homeowner to keep accessing the loan as long as parameters are met. As a form of revolving credit, a HELOC is a flexible loan product that gives homeowners the freedom to spend what they need whenever they need within the limits of the loan.

Those who need a lump sum may choose to get a home equity loan. This is especially helpful for those who need money for a huge renovation or debt consolidation.

What Are the Risks of Second Mortgages?

Second mortgages typically come with a higher risk for both lender and borrower as compared to a first mortgage. This is mainly why lenders impose a higher interest rate for a second mortgage as well as have stricter requirements before giving approval. Lenders have to pay higher insurance for a second mortgage to make sure that they are covered in the event of the homeowner going bankrupt. As for the homeowners, a new debt on top of an existing one will always make things riskier.

Is It Time for You to Get a Second Mortgage?

Assess whether you truly need a second mortgage and whether you can qualify for one. Note that requirements vary from one lender to the other. Try to gauge if the risks will be worth it for you. Better yet, contact us at Mortgage Central to talk to our mortgage professionals. We’ll be able to answer your questions to help you make an informed decision.