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!

 

What You Need to Know About a Second Mortgage

Applying for a second mortgage is not easy if you do not know what you are doing especially during uncertain times. However, now might be a smart time to get a second mortgage with the help of mortgage professionals who can assist you and put your needs as a priority. Read on below to find out the things that you must know when applying for a second mortgage.

Getting a Second Mortgage

True to its name, a second mortgage is a type of mortgage loan that you can get on top of your primary or first mortgage. It is a home loan because it is secured by your home equity. A second mortgage will allow you to access as much as 80% to 90% of your home equity depending on the specific type of second mortgage that you plan to get. Most people who apply for a second mortgage instead of a mortgage refinance do so because they are trying to avoid the fees linked to breaking a primary mortgage.

Why Get a Second Mortgage

Although there are many uses for a second mortgage, the most common reasons people cite is that they want to use the funds for a home renovation project, debt consolidation, or to pay for higher education. By getting a second mortgage, you can take advantage of specific benefits that come with each mortgage type and can help place yourself in a better financial position than your current situation.

Kinds of Second Mortgages

A second mortgage can be a smart financial decision if you know how to use it. You can choose to get a HELOC to help you pay for several smaller expenses that are coming up and cannot be covered by your savings. It is a revolving line of credit that will also allow you to reuse your credit line after payments. Think of a HELOC like a credit card that you can borrow from again and again as long as you are paying off when you can to keep your line of credit open. You can also opt for a home equity loan if you need access to a lump sum of cash for huge expenses or purchases such as for debt consolidation, investment funds, or an extensive home renovation.

Dangers of Second Mortgages

Second mortgages have a higher risk of not getting paid compared to a first mortgage. In the event of financial difficulty, any monies left will go to paying debts; however, a primary mortgage will always have first priority before a second mortgage. Because second mortgages carry a lot of risks for the lender, they set a higher interest rate for it as well as pose more requirements before qualifying someone to avail of it. Bigger institutions are typically very strict about their requirements, which is why it can be easier to apply for a second mortgage with a smaller lender.

Should You Get a Second Mortgage?

You need to take a hard and objective look at your current financial situation to gauge if you can qualify for a second mortgage. You’ll have to take into consideration that lenders will typically have slight variations in their requirements that can allow you to qualify for one and not the other. If you need help applying for a second mortgage or getting approval, be sure to contact us at Mortgage Central Canada for professional assistance. Contact us today!

 

Facts About Getting A Second Mortgage

A second mortgage is unlike a first mortgage or financing a mortgage. With a second mortgage, the lender will have to evaluate the equity built into the home before approval. Less significance is placed on other factors such as credit score and income source whether you will be getting a second mortgage from private lenders or from institutional lenders such as banks. Just note that some banks may still have stricter qualifications when it comes to having regular employment and a high credit score.

Applying for a Second Mortgage

At current time, debt consolidation is the most popular reason for people who are applying for a second mortgage. Another popular reason is to pay for home renovations to improve their property’s value. Some use a second mortgage to pay for higher education or to serve as emergency fund especially during trying times. The beauty of a second mortgage is that lenders typically do not need to know what the funds will be used for provided that their loan requirements are met by the homeowner.

How Much Does A Second Mortgage Cost?

Homeowners in Canada can access as much as 80-90% of their home equity via a second mortgage. That amount of money can ease financial burdens and change lives if used wisely. For a lot of people, a second mortgage is a much smarter choice than other loans considering that it only has an interest of 5-15% whereas other loans may charge as much as 30% in interest. Although 5-15% interest may still sound a lot for many people, it is still a savings of more than 50% compared to other loan products. That interest rate is further justified if you’ll note that in case of any problems with payments, the primary mortgage will get the first priority when it comes to getting paid. A lender for a second mortgage has to charge a slightly higher interest than a primary mortgage to cover the cost of risks for them.

How to Pay for a Second Mortgage?

As a borrower, you are supposed to pay a monthly payment that covers the interest and pay according to the terms that you agreed with. It is possible to have prepayment options and this is best discussed with your lender. Note that after you’ve reached the term of your loan, there may be an option to renew for another year. If you do not wish to go this route, then simply follow the agreed-on payment terms.

Facts About Second Mortgages

Below is a list of information that you have to know when applying for a second mortgage:

  • You may be able to access as much as 80-90% of your home equity
  • Different lenders have their own set of requirements. If you were turned down by a bank or a financial institution, it is still possible to get a second mortgage from a private lender
  • Most second mortgages offer 1-year terms. Prior to the payment term, the borrower is usually charged for the interest only

Are you thinking of applying for a second mortgage? Contact us and we will make sure to get back to you as soon as possible. We will be happy to answer your questions and assist you in assessing what mortgage loan type is right for your needs.

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.

 

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.

 

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.

 

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!

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.