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!

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!

 

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.