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 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!

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.

Only Get a Second Mortgage After Reading This!

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!

8 Things You Must Know About Second Mortgages in Canada

Second mortgages are nothing new to most Canadian homeowners; however, not everyone has an equal understanding of what a second mortgage really is and how it can benefit them. For starters, a second mortgage is a secured loan with the security being the home equity. It is a type of home loan that allows homeowners to tap into their home equity.

Second Mortgages Come in Different Forms

Do you know that there are different types of second mortgages? As a loan product, a second mortgage can be accessed as a lump sum in the form of a home equity loan, or as a revolving line of credit in the form of a HELOC.

Second Mortgages Common Uses

Most Canadians get a second mortgage to help them consolidate debt. By using a second mortgage to pay off high-interest debts, they save on interest as well as make payments easier to manage for themselves. Another common use for a second mortgage is to finance home upgrades or home renovations. By doing this, a homeowner can significantly increase the value of his or her home and effectively make the debt pay for itself.

Your Home is On the Line if You Apply for a Second Mortgage

Because this type of loan products uses your home equity as collateral to the lender, the lender is entitled to take the collateral in the event that you fail on your obligation to pay. If you are sure that you can pay, though, this loan product offers significantly lower interest than unsecured loans.

There are Flexible Payment Options

Do you know that some types of second mortgages allow you to make interest-only payments? This gives you more room to maneuver with your finances such as when you use the second mortgage to pay for renovations to increase your home’s value, pay only the interest, and pay the loan after you sold your home for a much higher price.

Your Home Equity Can Be Used for Lots of Things!

Need money for an investment opportunity? Use your home equity! Have expensive tuition? Pay that with your home equity! These are just a few of the ways that you can leverage your home equity to make your life easier.

You Can Borrow A Lot or a Little

The amount that you can borrow is based on the equity you have on your home. If you’ve built huge home equity and need a lump sum, then get a home equity loan. If you need recurring smaller amounts for a period of time, then a HELOC is for you. These loans allow you to borrow 60-85% of your home equity depending on other factors.

Borrowing Isn’t Free

Because borrowing from your home equity requires paperwork and other processes, there are fees that you have to pay. The fees can vary from lender to lender so it is best to ask around before you make a decision. Don’t forget to ask about early payment fees as well.

Interest Rates Vary Too

Depending on the type of second mortgage you go for, the interest payments can vary by as much as thousands of dollars because of the difference in interest rates. If you can talk to a mortgage broker who is connected with a lot of lenders, you stand a better chance of getting the best interest rate.

Are you interested to apply for a second mortgage? Make sure that you understand what second mortgages are and how they can help you! Contact us to discuss your options for tapping your home equity!

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

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.

Need a Home Equity Loan in Ontario? Here Is What You Need to Know for 2019

A home equity loan is a home loan that requires a piece of real estate to be used as collateral or security. This loan is provided as a mortgage on a piece of property. The amount someone can borrow from this type of loan is based on the equity of the property used as security. Because of this, a homeowner who needs a home equity loan should have a relatively significant amount of money paid on the property versus the debts taken on the property. Note that a home equity loan is not the same as a bank mortgage.

Home Equity Loans in Ontario

In Ontario, a typical home equity loan comes with an interest of 7% to 15% as a one-year open first mortgage or second mortgage. Most of the time, an option to end the mortgage early is part of the terms. In such cases, the borrower will only have to pay a penalty fee equivalent to three-month interest. In this regard, home equity loans are much more forgiving than traditional mortgages from banks and can also be made in such way that will fit the borrower’s specific situation. The terms can be drawn up between the borrower and the lender with the help of Canadian mortgage professionals.

What is the Limit for a Home Equity Loan

The amount of existing debts on the property and the current value of the property in question are major factors in determining how much a homeowner can borrow as a home equity loan. Lenders will also calculate the LTV or Loan to Value ratio and adjust what they can lend accordingly. Some lenders may also consider employment history, source of income, and credit score as additional metrics.

Using a Home Equity Loan in 2019

The common uses for home equity loans remain the same. Most people either use their home equity loan to fund a home renovation or to pay expensive debts (debt consolidation). Some use their home equity loan as capital for a new business and some use it to pay for higher education.

Please know that the best uses for home equity loans are expenditures that give value back to you. If you can, refrain from using it to buy luxury bags, gadgets that you don’t really need, or spend it in gambling.

Is a Home Equity Loan the Same as a HELOC?

Although a home equity line of credit may sound almost the same as a home equity loan, they are different types of loans. A HELOC allows you to use up to a predetermined amount in a revolving manner whereas a home equity loan is given to you as a lump sum with a fixed interest rate and payment. If you need to know more, you can talk to us at Mortgage Central Canada so we can discuss which may be better for you.

Are you thinking of applying for a home equity loan in Ontario and nearby areas? Contact us and we’ll try to make the process as easy as possible for you!

The Pros and Cons of Home Equity Loan Lines of Credit

Do you know that about 3 million Canadians have an existing home equity line of credit but survey says that half of us don’t truly understand how they work? According to survey, 35% of people in Canada have a home equity line of credit and 19% admitted that they borrowed more than they intended.

Rising Popularity, Will it Lead to Downfall?

Home equity lines of credit have risen in popularity over the past 15 years and yet survey says that a significant number of Canadians don’t really understand home equity loans work and when they should be paid.

According to the study released by FCAC or the Financial Consumer Agency of Canada, more than 3 million Canadians have a HELOC with an average debt of about $65,000. In fact, more than 25% of those who have a HELOC has a balance of more than $150,000 and 25% also admitted that they only pay the interest payments per month.

Crunching the Numbers

4,800 Canadians were surveyed by Ipsos on behalf of FCAC to determine the need for more financial education back in the middle of 2018. 35% of those surveyed have a HELOC while 54% have a mortgage.

FCAC communications strategist Michael Toope says that HELOCs are undoubtedly cheap sources of credit and that Canadians may need more information on how to use HELOCs well.

Just to note, a HELOC is a revolving type of credit product that is secured by home equity. A borrower can get access to a ceiling of about 65% of the value of the home via HELOC and application is a breeze considering that HELOCs are often offered by banks to people with home equity.

The Problem

The issue with HELOCs and other types of home loans is that they can be too easy at times to apply for, resulting in people with little to no understanding getting a home loan that they do not know how to manage, much more repay. This results in unwise spending and struggling with debt later.

While a HELOC and other home equity loan options are designed to provide temporary financial relief, improper use and failure to pay can lead to a borrower losing his or her home. The lack of knowledge of consumers who has a HELOC is the real culprit behind giving home equity lines of credit a bad name in recent times.

Although it is true that interest has been climbing up since 2017, the real issue is financial mismanagement due to not understanding borrower’s responsibilities and consequently, neglecting them.

Are HELOCs Risky?

Yes and no. For the two-thirds of Canadians who told the survey that they only use their HELOC as a revolving line of credit, a HELOC is a financial tool to help them manage their money better and even build wealth. For those who don’t pay on time and spend beyond their means, a HELOC can be a disaster in the making. The key is financial education.

Are you worried about getting a HELOC? Do you need help understanding what a home equity line of credit is and how you can use it to your advantage? Contact us and we’ll be happy to answer your queries. Our mortgage professionals will help you assess whether a HELOC is right for you.