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.

 

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.

You May Not Know This Yet About A Second Mortgage

Getting a second mortgage is a huge financial step that requires thoughtful consideration and planning. It isn’t something that you can do just out of the blue or for no real reason because getting approved for a second mortgage means getting a home loan with your property as the collateral. It is best to make sure that you truly understand what you’re getting yourself into before getting a second mortgage.

Is a Second Mortgage Risky?

Like any other secured loans, a second mortgage carries risks for the borrower as well as the lender. The lender shoulders the risk of not getting paid because of the nature of the second mortgage as a secondary loan; and thus, not a priority for payment like the primary mortgage. The borrower carries the risk of losing his or her home if he or she can’t honour the terms. The risks are real but they shouldn’t be an issue if the borrower has the ability to pay and the wisdom to not borrow more than what he or she can afford.

Reasons for Getting a Second Mortgage

People apply for a second mortgage for a variety of reasons. The most commons ones are to fund a home renovation, pay for higher education, or to spend for a big project. Another possible reason is not wanting to break the terms of an existing mortgage as well as avoid having to pay associated fees. Some people apply for a second mortgage so that they can use their home equity for debt consolidation.

With the above said, it is easy to see how getting a second mortgage can be of great help as long as the funds acquired are used in a smart way. One doesn’t have to be in dire financial straits to consider getting one.

Fees and Interest for a Second Mortgage

Because a second mortgage is riskier for the lender as compared to a primary mortgage, it is understandable that the interest rate is also higher. However, it is not as high as the interest imposed for personal loans such as those for credit cards.

Note that a second mortgage comes with standard fees as well as other possible fees if you decide to pay more or pay earlier. To make sure that you’ll not be charged penalty fees, read the fine print in your second mortgage terms and familiarize yourself with the second mortgage ‘rules’ that apply to your loan contract. Your mortgage broker should also help you understand the terms if you availed of professional mortgage services.

Should You Get a Second Mortgage?

A second mortgage can give you convenience and financial elbow room to help get you right on track if done right. You must consider what you’ll be using the loan for as well as your cash flow for the duration of the terms to make sure that there won’t be issues. The benefits must outweigh any possible cons. Do you need professional help for getting a second mortgage? Contact us and we’ll do our best to be of assistance.

2019 Guide to a Second Mortgage in Ontario and the GTA

Spring is here! Like many other individuals, you may be contemplating about getting a second mortgage this year and asking yourself whether it will be worth it as well as what are the things you need to know. Well, you’re in luck today if you’re seeking more information about second mortgages!

Second Mortgage Definition

A second mortgage is a secured loan, with the security being the value of the homeowner’s property. It is not the same as a primary mortgage and is paid separately. A second mortgage is also the term used for any other loan secured by the home’s equity no matter how many similar loans there are.

A second mortgage is considered a mortgage because the term refers to any loan secured by real estate as collateral and need not be used for the purchase of the home itself.

As mentioned earlier, the term second mortgage applies to any home loan taken after the primary mortgage. If a second mortgage is subject to foreclosure, the primary mortgage is paid off in full first and what is left is used to pay the second mortgage.

Second Mortgage Rates

Rates for second mortgages can vary from lender to lender. An upside is that the interest rate is markedly lower than other options for loans such as unsecured personal loans or credit cards. This is because a second mortgage is backed by home equity; hence, there is some security for the lender. In comparison to a primary mortgage, the interest rate for second mortgages is still a bit higher because they carry more risk with everything considered.

Some second mortgages may have a fixed interest rate and some may have a variable rate. Having a variable rate mean that rates are adjusted from lower to higher based on market condition. Having a fixed rate just mean that payments are predictable because the interest rate remains the same throughout the course of the loan.

Types of Second Mortgages

There are 3 main types of second mortgages, home equity loans, piggyback loans, and home equity lines of credit.

  • A piggyback loan is a way to save money by splitting the purchase of the home into 2 different loans.
  • A home equity line of credit is a loan from which you can draw from many times over as you need.
  • A home equity loan is a lump sum loan taken against the value of the house.

Get a Second Mortgage in 2019

Second mortgages under HELOCs and home equity loans require that the homeowner owns a significant value of equity in the property. Some lenders require a specific credit score, income bracket, steady employment, and other data. Some lenders are more lenient and will lend money to someone who may be self-employed or have bad credit. You just have to understand the terms and make sure to read any fine print before getting a second mortgage from a lender.

Are you applying for a second mortgage soon? Contact us and we’ll help you assess whether it is the right type of loan for you! Wherever you may be in Ontario, the GTA, or Canada, our mortgage professionals are within easy reach. Talk to us soon!

New Rules for Second Mortgages in Canada

The mortgage world is abuzz with new information regarding getting additional financing for those who have a HELOC. Some of the Big Six banks have adopted the policy as of recent update. This means that those who have a HELOC will now have to prove that they are capable of paying the theoretical monthly payment based on their HELOC limit and not just the minimum required based on what they actually use.

Impact of HELOC Changes

The largest provider of HELOCs in Canada, TD Canada Trust, have also adopted the new changes, joining some other major banks including RBC. Rob McLister of RateSpy.com says that with these changes, the banks will assume that you’ve used up all your credit despite having zero balance. This change will have a significant effect on those who may want to get additional financing if they already have a HELOC.

McLister adds that this new development means that someone with a HELOC limit of $200,000 will now have to prove that he or she can afford to pay a $1,202 HELOC payment on a monthly basis. This translates to a sizable number of Canada’s 3.1 million HELOC holders now deemed unqualified to get additional financing like some can still do today.

Industry Reacts to Changes

In view of the above, some may need to restructure their HELOCs and have to incur additional fees as well as possibly lose financial flexibility. Industry insiders like CanWise Financial President James Laird agree that banks treating available credit as used credit is a big change. More so that many of the mortgage changes in the past 10 years have made purchasing another home quite difficult for those who just have a primary residence. With these changes, some may even be forced to choose between purchasing a second property or having a credit facility they can use when needed.

Although the change will not have the same effect everyone, and really only disadvantage those who want to get additional financing, it is alarming that industry experts were not consulted before new rules were introduced.

Emotional Effect on People

Industry insiders think that the change will have a bigger emotional than financial impact on people. Tighter regulations and controls may discourage people to venture into improving their lives by borrowing and investing. Some think that a few minor policy changes would have had a better outcome than the new changes since real estate trends have a cyclical nature, with some industry insiders dubbing the most recent change as “an overkill piled on top of an overkill” saying that the mortgage industry is past worrying about market stability and is now just posturing to please politicians, pundits, and regulators.

Concern Over HELOCs

FCAC Commissioner Lucie Tadesco (FCAC stands for Financial Consumer Agency of Canada) raised concerns about the behaviour of those who have HELOCs, most of whom are just paying for their interest. The main risk is that they may run themselves deeper into debt and may not be able to get out of it.

Are you concerned about the new development shared above? Contact us so we can help you assess what financial options may be best for your circumstances and needs if you already have a HELOC or thinking of getting a second mortgage in Canada.

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!

Get a Second Mortgage with Bad Credit

Bad credit may get in the way of getting a second mortgage but it is still possible to get approval even with a less-than-desirable credit score. This is definitely worth a consideration because a second mortgage can be used to improve one’s credit score. A strong application is a must and you must shop for the best interest rate to reap the most benefits.

Dealing with Bad Credit

Getting a second mortgage with a bad credit comes with certain disadvantages. First of all, a second mortgage already comes with a higher interest rate than a first mortgage but with a bad credit, the lender will surely ask for a higher interest to cover the risk of lending to you. This is because a second mortgage is subordinate to the first mortgage and the lender for the second mortgage runs a higher risk of not getting paid if financial troubles arise. It is therefore only logical to be given higher interest rates for a second mortgage if you have bad credit but you can still get a good deal by shopping for the right lender.

Apply for a Second Mortgage with Bad Credit

The first step that you must do before applying for a second mortgage if you have bad credit is to find ways to improve your credit score. It is possible that there are some mistakes that can improve your score once corrected. By getting a copy of your credit history and reporting wrong entries, you may be able to get a great boost in your credit score for a relatively short span of time.

The second step that you must take to get a second mortgage despite having bad credit is to actively work towards reducing your debt, particularly the high-interest ones such as credit card debt. If it is possible, pay them off in full or make sure that the balance is below 30% of your credit card limit. Don’t fall for converting your credit card debt into new lower-interest card debts because this won’t help you in getting approval for a second mortgage. It will look like you have multiple credit applications which will make it seem that your finances are in worse shape than it really is.

Find the Best Lenders in Canada

Getting help from a mortgage professional will make your second mortgage application a lot smoother if you have bad credit. Mortgage professionals know which lenders are more lenient and which lenders will give you a better interest rate. Mortgage professionals can also share some tips for faster approval such as having a co-signer with a good credit score.

Getting a second mortgage with terms that you can manage within a short span of time will drastically improve your credit history and open the possibility of qualifying for other loans in the future. Contact us if you have bad credit and need help with applying for a second mortgage in Canada. We’ll be more than happy to discuss possible solutions with you at Mortgage Central Canada!