The 2021 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.

10 Things You Must Know About Second Mortgage in Canada

Getting a second mortgage in Canada is not just becoming more popular, it might also become the norm in the years to come. Whether or not you’re planning to get a second mortgage in the future, now is the best time to familiarise yourself about some details so you can make the right decision in the future.

Second Mortgages Come in Many Forms

Basically speaking, loan products that use home equity can be considered a second mortgage. Notable examples are HELOCs and home equity loans. The type of second mortgage that you have to apply for is the one that fits your needs and ability to pay.

A Second Mortgage Uses Your Own Money

When you apply for a second mortgage, you are basically applying for a ‘loan’ that uses your own money. You have to be careful though, as tapping your home equity means placing your home on the line if repayment does not go as planned.

Private Lenders May Be Better Than Banks

For most people, qualifying for a second mortgage from a bank is near impossible, but private lenders often have looser qualifications that make it easier for those who are self-employed or those with bad credit to qualify.

Second Mortgages Are Used for Huge Expenses

Because this type of mortgage gives the homeowner access to their home equity, second mortgages are often used for debt consolidation and for paying for home renovation. This is to take advantage of the lower interest rate that second mortgages have compared to most other loans.

You Can Borrow A Lot or Borrow As Little As You Need

Different loan products have varying minimum loanable amount and maximum limit. When you qualify, you may borrow as little as you need or as much as you want within these parameters. Go for a HELOC for smaller recurrent loans or apply for a home equity loan to access a lump sum of funds.

Interest-Only Payments Are Possible

Some types of second mortgages allow for interest-only payments, making them easier to handle for your wallet.

A Second Mortgage Can Be Used for Anything

Once your loan is approved, you can use it for almost anything! Some people use it to finance a business, some to pay for home improvement, some for expensive university education, some for a dream car or vacation, and some to buy another property. As long as you pay within the terms, you can use your loan any way you want.

It Is Not Free

Aside from the interest rate, second mortgages come with fees. These fees may vary from lender to lender so be sure to talk about this detail with your mortgage professional.

Interest Rate Varies A Lot

Just as the fees vary from one lender to another, the terms and interest rates vary as well. A mortgage professional can help you compare interest rates between lenders so you can save some money too.

You Can Repair Bad Credit with A Second Mortgage

By using a second mortgage to consolidate loans, you can pay off other loans while getting lower interest that will be easier for you to pay off as well.  As you do this, your credit score will repair itself soon enough.

Thinking of applying for a second mortgage? Contact us at Mortgage Central if you have mortgage questions!

Should You Choose Home Equity Loans VS Home Refinancing?

Interest rates for mortgages are projected to remain low until 2023 and so homeowners are understandably trying to take advantage now by tapping into their home equity. The question is, what is a better way to use home equity? Should you go for refinancing your mortgage or opt for a home equity loan?

Watch Out for Prepayment Penalty

One important thing to consider is having to pay a prepayment penalty. If you break your mortgage before the term is up for any reason, you can be charged a prepayment penalty. This remains true even if you are refinancing your mortgage with the same lender. This fee can range from a few thousand to tens of thousands of dollars because factors such as your interest rate, years left to pay, and more are considered. You need to consider this fee to make sure that you would not be in worse financial situation after refinancing.

Because of the above, more Canadians are leaning towards taking a home equity loan rather than refinancing their mortgage. A home equity loan is a loan taken against one’s home equity and is given in a lump sum to give people more freedom and fast access to a large sum of cash.

Why Get A Home Equity Loan?

There are many benefits to getting a home equity loan and one is avoiding prepayment penalties associated with a mortgage refinance. With a home equity loan, you can keep your first mortgage and just get another mortgage on top of it so you will not be breaking your first mortgage. This way, the slightly higher interest rates are justified and you can still end up saving more versus a mortgage refinance.

Another benefit of a home equity loan is flexibility. Home equity loans can be customized to meet your needs. Your lender can match your term on your existing mortgage and more. You can be offered interest-only payments or a custom payment plan that could match your finances.

A home equity loan is also markedly quicker than a mortgage refinance and can be processed and approved within days. More so, there is no mortgage stress test required for a home equity loan. There is no need to requalify with current mortgage stress test guidelines.

As for other benefits associated with a home equity loan, you can use it for a variety of uses. You can use it to pay for home renovations, pay for debts for debt consolidation, use it to fund a business, buy an investment property or a second home, pay for tuition, spend on a wedding, and many more.

How to Get A Home Equity Loan?

Contact us at Mortgage Central Canada for a consultation if you are not sure about getting a home equity loan. We can help you assess which loan type may be best for you by discussing the pros and cons of each type as they relate to your situation. Borrow against your home equity with confidence today! Apply for a home equity loan with us.

 

 

Can a Second Mortgage Work for COVID Relief?

Lots of people are struggling financially these days as financial relief from government agencies and institutions are running out. The reality is that even if the COVID-19 pandemic comes to a complete halt tomorrow, it will take at least a few months for businesses and the economy to pick up and go back to normal. What, then, can someone do to get through it?

Get a Second Mortgage Now? Is This a Good Idea?

Before the pandemic, people usually get a second mortgage to pay for a down payment, consolidate debt, or pay for home renovation and home improvement projects. This is because a second mortgage is a way to access a large sum of money with relatively lower interest compared to bank loans such as using credit cards, borrowing a personal loan, or getting a business loan. This is possible is because a second mortgage is a loan that is backed by home equity and hence has a lower risk of nonpayment compared to an unsecured loan.

The above is not to say that a second mortgage has no risks and interest fee, it is just that it is easier to manage a second mortgage because of more affordable fees. Note too that although it less risky for a lender, a second mortgage carries a high risk for the borrower, as failing to pay within the terms can result in losing one’s home.

Is it a good idea to get a second mortgage now? The general answer is yes. If you have a stable job or are sure that you can secure a steady source of income soon and need a huge amount of money to tide you over for the next few months, then yes. If you are someone who has no job, no source of income for a few months to years, then the answer is no. Even a mortgage professional needs to know more about your specific circumstances to give a tailored answer to you. A lot of factors need to be considered before getting a second mortgage.

How Does a Second Mortgage Work to Access Money?

If you own a home or has been paying towards your primary mortgage, you have home equity. The more payments you’ve made towards your home, the higher your home equity is. Home equity represents the value of your home that you actually own. You can estimate it by subtracting any remaining debts from your home’s current real estate value. To access that value, you can either sell your home or get loan using your home equity. If you get a home equity loan while still paying your primary mortgage, then it is called a second mortgage because it goes on top of your first mortgage. You can choose to access the money as a lump sum via a home equity loan or get access through a line of credit with a HELOC.

Second Mortgage for Funds Covid-19 Pandemic

Given the above information, we can say that it might help you to access funds via a second mortgage to pull you through these challenging times. Is it the best financial move? Only you can decide that after consulting with us at Mortgage Central Canada. What we can do is to provide you with information for you to make an informed decision that will benefit you in the long run. Talk to us at your earliest convenience. Contact us if you’re serious about getting a second mortgage.

Does a Second Mortgage Differ from A Home Equity Line of Credit?

A home equity line of credit is not the same as a second mortgage although the other term for a second mortgage sounds like it. A second mortgage also goes by home equity loan and some people are confused about the difference between the two. Both are types of mortgage loans that go on top of a primary mortgage but they differ in how the funds are made accessible to the homeowner. With a home equity loan, the money is handed out as a lump sum while with a HELOC, the money is made available as a revolving credit line, very much like a credit card.

How Does a Home Equity Line of Credit Work?

A HELOC works as a revolving line of credit. This line of credit is opened by the lender using the home equity as a guarantee against the credit line. This means that a borrower can keep borrowing and paying the line of credit for as long as and as much as the term allows during the draw period which typically lasts for about 10 years.

The payments and interest for a HELOC vary per month based on the amount borrowed. The repayment period typically lasts for about 20 years. If no amount was used up during the loan period, then there is nothing to pay back because the homeowner technically doesn’t owe anything from a HELOC until they draw from the line of credit. Note that if the home’s value drops significantly, the line of credit may be frozen by the lender and missing payments can mean risking losing one’s home.

How Does a Second Mortgage Work?

A second mortgage uses the home’s equity as collateral. The homeowner is allowed to borrow money based on the equity that they have. This money is given out as a lump sum at the beginning of the loan. The loan then follows a fixed payment amount and interest until the entire loan is paid off. Once paid off, the homeowner can borrow again.

Missing payments on a second mortgage can place your home at risk of foreclosure. It is best to make sure that you can afford to pay both the primary mortgage and second mortgage before getting one.

Is A Second Mortgage Better Than A HELOC?

People use a HELOC or a second mortgage to meet their specific needs because each comes with their set of pros and cons. Both can be used for big and small expenses such as paying for home renovation, financing debt consolidation, funding higher education, and more. Both can result in losing one’s home for failure to make payments.

Can A Second Mortgage or a HELOC Be Used as An Emergency Fund?

Technically, the answer is yes but ideally, no. It can take a few days to a few weeks for the loans to be approved and so they can’t be relied upon in an emergency unless the loans are already existing. It is best to have some savings for an emergency for optimum financial stability.

Get A Second Mortgage or a HELOC Now

If you’re thinking of applying for a HELOC or getting a second mortgage, it is best to consult with trusted mortgage professionals first to find out which one may be better based on your specific circumstances. Contact us at Mortgage Central Canada so that our team can address your concerns. We are available to serve you in these trying times.

Things to Consider Before Getting A Second Mortgage

There are many things to consider before getting a second mortgage. First is the fact that a second mortgage is a loan that goes on top of a primary mortgage, meaning, it is an additional loan that uses the home’s equity as collateral. Another big factor is whether the purpose of the loan is worth it for the hassle of getting the loan. After all, it isn’t a secret that getting a second mortgage involves a few steps that take time, effort, and money.

Mortgage rates are at a historic low for September 2020 in Canada, paving the way for an increase in refinancing and homebuying. This may be a reason why you might be interested in getting a second mortgage at this time. However, you must know that interest is just one of the things to consider for getting a second mortgage. Below are other factors that you must look into.

Cost of a Second Mortgage

Getting a second mortgage is not cheap. The cost will vary depending on how much you will be borrowing, your lender, and what type of second mortgage you will be taking. You will have to pay a closing cost as well as an appraisal fee, underwriting or application fee, recording fees, and possibly more especially if you will be applying for a second mortgage from another lender other than the one you have for your primary mortgage. The lender may charge a fee for a second-lien position as a form of insurance for the extra risks that the lender will be taking.

Uses for a Second Mortgage

You can use a second mortgage for almost anything that needs a large sum of cash. Most people use theirs to pay for a home renovation and for debt consolidation. Some get a second mortgage to pay for an investment such as a new business, another property, or higher education.  For some people who use their second mortgage for debt consolidation, they do so because they end up saving thousands of dollars in the long run. Whatever you use your second mortgage for, it is best to consider if the purpose will outweigh the risks. The result has to be worth your time, money, and effort.

Second Mortgage Alternatives

If you’re looking for ways to access your home’s value for funding, getting a second mortgage is not the only way to achieve that. Mortgage refinancing is an option more so if you do not qualify for a second mortgage. This may result in a lower amount that you can use but is worth consulting with a mortgage professional with.

Other Points to Remember

A second mortgage is an additional financial burden because it is a loan taken on top of the mortgage loan you already have. Getting a second mortgage may make you more vulnerable to risks of losing your home.

There are several types of second mortgage that each come with pros and cons. Consulting with a mortgage professional is a smart move to make sure that you are choosing the best fit for your needs and financial capabilities.

If you’re looking for mortgage professionals to assist you in getting a second mortgage in Canada, contact us at Mortgage Central Canada.

 

Disadvantages and Advantages of Second Mortgages and How They Work

Deciding whether to get a second mortgage or not is a serious financial decision. After all, applying for a second mortgage means using your home equity as collateral for a loan.

How Does a Second Mortgage Work?

When you apply for a second mortgage, the money lent to you is held against the value of your home equity. Failure to repay the loan can mean losing your home to foreclosure because that is the only way the lenders can recoup their losses in the event of non-payment. You have to be sure about the type of second mortgage that you get and the payment terms that you agree to in order to make sure that getting a second mortgage will work for you.

Advantages of a Second Mortgage

Second mortgages are an attractive loan option for homeowners for many reasons. Perhaps the biggest reason is the loan amount. With a second mortgage, you can borrow as much as 80% of your home equity and choose whether to get that as a line of credit or a lump sum. That’s a lot of cash that can be used for a big project.

Another advantage is lower interest rates compared to other types of loans. A credit card loan or a personal loan charges many times the interest charged by a second mortgage. Note that compared to a primary mortgage, a second mortgage’s interest is a bit higher because the loan carries more risks of non-payment for the lender.

Tax Benefits are another advantage. There are some laws that will allow those with second mortgages to deduct their mortgage interest from their taxes especially if the funds were used to improve the home. The tax benefits may vary by province and year.

Disadvantages of a Second Mortgage

The risk of losing one’s home is the biggest disadvantage of a second mortgage. However, this risk can be managed and mitigated if you work with mortgage professionals who will help you decide on a second mortgage with terms that are right for you.

Another disadvantage is loan costs. Getting a second mortgage comes with fees for things such as appraisals, credit checks, origination fees, and more. You have to know that closing costs and the fees can easily amount to thousands of dollars. Choose a lender that will let you know how much you will be expected to pay before getting a second mortgage.

Uses for a Second Mortgage

To make a second mortgage work for you and be worth all the possible disadvantages, it is best to have a clear purpose for the loan. Smart uses for a second mortgage include paying for home renovation or improvement, loan consolidation of high-interest loans, financing higher education that can be used to improve job prospects and pay grade later, and other forms of investing.

Are you looking for a lender for a second mortgage in Canada? Talk to us at Mortgage Central Canada and we will be happy to address your concerns and questions. We will also help you get approved!

 

Read This if You’re Applying for a Home Equity Loan

Applying for a home equity loan is getting more attention these days as more people need access to the value they’ve built up in their home equity. As a type of second mortgage, a home equity loan helps people get a lump sum of cash that they can use to achieve their financial goals, may it be debt consolidation, home renovation, more investments, or higher education.

The Good About a Home Equity Loan

A home equity loan comes with pros and cons same as with other types of loans. It can be a relatively easy way to access a substantial amount of money as the home equity is used as collateral. It can be tempting to apply for one as any interest can possibly be claimed as a tax deduction, not to mention that it already enjoys a lower interest rate compared to other loans because it is a secured loan.

The Bad About a Home Equity Loan

Because a home equity loan is secured by the home equity, there is a risk of losing the home if the debt is not paid in time. It is also secondary only to a primary loan in the event of foreclosure to there are additional costs upon approval other than the closing fee.

Should You Get a HELOC or a Home Equity Loan?

Most people are confused regarding the difference between a HELOC and a home equity loan. They do sound alike; however, they differ in how the funds are made accessible to the homeowner. With a HELOC, the borrowing homeowner is given a line of credit whereas with a home equity loan, the loan is given as a lump sum of cash. Repayments come later for a HELOC while with a home equity loan, there will be fixed monthly payments until the loan is fully paid off. What is best for you depends on how much cash you need, your cash flow, and your ability to repay together with other factors. Your mortgage professional will delve into this further with you before finalizing your application for approval.

How to Get a Home Equity Loan

To get the best terms, you should consider inquiring from several lenders to compare interest rates, costs, possible loan estimates, and more. If you can, work with a mortgage professional to make this process easier for you. Once you send in an application, the lender will check your credit and ask you for an appraisal to properly gauge the value of your property. The entire process can take a few days to a few weeks depending on each lender’s requirements.

Poor credit is usually not a detrimental factor for you to get approved. What matters the most is your home equity. Based on this and other factors, the lenders will compute what loan amount they are comfortable lending to you. Note that things may be a little different from HELOCs but basically, you will be asked to submit nearly the same requirements.

Find a Good Lender

The best home equity loan lender for you is the lender that can save you the most money in the long run. You will have to look into fee structures, the advantages and disadvantages of loan programs available, and how they take their time to make sure that you understand the options you have. At Mortgage Central Canada, we will assist you in shopping for the ‘best-fit lender’ for your needs. Contact us today!

 

Your Guide to Debt Consolidation

Debt consolidation is a means to get out of debt faster by combining multiple debts into a single loan with easier payment terms. By combining several debts into one, you will find it easier to handle your monthly budget and enable you to set aside more money towards loan repayment.

How Does Debt Consolidation Work?

The most common way to consolidate debt is by taking out a debt consolidation loan. A debt consolidation loan is typically a large loan with a relatively lower interest rate than your existing loans and used to pay off existing loans so that you’re left with just one loan to take care of later. The idea is to save on interest and to make loan repayment a lot easier for you.

There are many ways to consolidate debt. The first step is to determine which of the different types of debt consolidation loans to use by assessing which will be most beneficial for you. You may choose from the following:

Using a Balance Transfer Credit Card

If you have a small amount of debt and you think you can pay everything off in a year, moving all of your debt on one credit card may be a good idea. The downside is you usually need an impeccable credit score to qualify for this.

Getting a Secured Loan

If you’re a homeowner or a car owner, you can use your property to borrow money with a lower interest rate. Qualifying for a secured loan for debt consolidation have a varying degree of success and largely depend on how valuable the property you are willing to use as collateral is.

Using Debt Relief

If you’ve exhausted other means of debt consolidation, you may want to look in using debt relief. A debt company will negotiate with your creditors to lower your monthly repayments and APR or negotiate other terms on your behalf. The downside is that this usually comes with a lot of restrictions as well as other requirements that you must comply with.

Applying for a Personal Loan

If you need to pay off huge debts and is willing to take several years to pay off your debts, applying for a personal loan may work for you. With a personal loan, you will borrow a large amount of money to pay off your existing debts and in turn, you’ll end up with a single debt to pay off per month based on the terms you’ve agreed to. A personal loan usually requires that you have a stable income and relatively good credit rating to qualify.

Home Equity Loan for Debt Consolidation

If you’re a homeowner, you may tap into your home equity for debt consolidation. You can choose to get a second mortgage or apply for a home equity line of credit to convert your existing debts into a single lower-interest loan.

Debt consolidation is just the first step towards a debt-free life. You must work hard to identify and stop the behaviours that got you into debt for long-term financial management. Contact us if you want to know more about how you can use your home equity for debt consolidation and how to qualify for a debt consolidation loan even with bad credit.

Is it Time to Use Your Home Equity?

World economy has taken a hit due to the months-long lockdowns and quarantines that a lot of nations had to place themselves under of. Even countries with stronger economies like the United States and Canada are not exempt from the financially crippling effects of the COVID-19 pandemic. The best way to bounce back is for households to have more purchasing power to in turn, jumpstart the economy; but that is something that is easier said than done. A lot of people have lost their jobs and sources of income, how then can they recover quicker?

Is it Time to Use Your Home Equity?

The good news is that the majority of people own their homes in North America. Owning a home means that the homeowner is sitting on a sleeping mound of financial asset in the form of home equity. When tapped, home equity can be a good source of emergency funds for households.

Unfortunately for Canada, more restrictions were placed on mortgage recently to address the housing boom as well as to control property prices. This means that it may not be as easy for many to liquidate their home equity into spendable wealth. There are also a lot of requirements, fees, and mandates that can hinder those with lower credit scores and no current income to qualify for ways to access home equity. A way to adapt to the looming economic crisis is to create easier qualifications that can allow the creation of more new home equity loans as well as approve more applications for refinancing mortgage.

Why Tap Your Home Equity?

It is estimated that the combined value of residential properties in the United States is at nearly $30 trillion. With this in mind, it won’t be a far out thought to estimate that Canadian home equity is also worth trillions of dollars. Given this data, hundreds of billions of dollars can easily be injected into the economy in the next few weeks if a small fraction of homeowners choose to borrow from their home equity at this time. Hundreds of billions of dollars can boost economic activity and keep everything running until businesses have had a chance to recover.

How About the Regulations?

There is talk that if the concerned agencies create a carve-out, it would be easier for lenders to have less strict requirements. It could be something that the Canadian government may look into in the following weeks to make it possible for lenders to approve more mortgage refinancing applications as well as have more slots for home equity loans.

Is it Smart to Get a HELOC or to Refinance Your Mortgage Now?

A $10,000 HELOC at 4% interest would mean having to pay only $33 per month in interest. Paying this is a cheap price to pay to enjoy extra funds and to have a means to get back on one’s feet. If regulations are relaxed, not only can more people avail of a HELOC, but more people will also be able to qualify for mortgage refinancing.

Are you a homeowner who’s open to try to apply for a HELOC or a mortgage refinance with a private lender? Contact us at Mortgage Central Canada today and let us walk you through your options.