Second Mortgage Loans in Canada

In Canada, second mortgage loans are an additional loan that a homeowner can take on a property on top of a primary mortgage. Because a second mortgage is an additional loan, the risks for the lender are quite high, prompting them to charge higher interest rates for second mortgages as compared to a primary mortgage to mitigate their possible loses should the homeowner fail to make payments.

Defining a Second Mortgage

Second mortgages technically come in 2 forms, the lump sum home equity loan, and the revolving credit HELOC which stands for a home equity line of credit. These 2 loans sound similar but they are not the same in terms of format, interest rates, and payment terms. Usually, the term ‘second mortgage’ applies to home equity loan to avoid confusion with a HELOC.

A good credit score is most certainly needed when trying to get a second mortgage from a bank or similar huge financial institutions. This is because the risks of nonpayment are higher for second mortgages due to the fact that paying for them is on top of an existing mortgage. For individuals who do not qualify for a second mortgage with banks, going the private lender route with the help of professional mortgage brokers is possible.

Who Needs a Second Mortgage?

People with a lot of credit card debts from various providers are ideal candidates for a second mortgage as the most popular use for it is to consolidate debt. With a second mortgage, you can access a part of your home equity as a lump sum and pay off your high-interest debts so that you end up with just one bill to pay instead of a few. By using a second mortgage to consolidate debt, you’ll save up on interest fees and more of your payment will go towards paying your actual loan than just struggling to cover interest fees. Other people who may need a second mortgage are people who need to fund a huge project (such as a much-needed home renovation). Consolidating debt and financing home improvement are great ways to use a second mortgage to improve your credit score too.

How to Qualify for a Second Mortgage?

Qualifying for a second mortgage means passing the lender’s requirements on 4 key areas, your credit score, your ability to pay, your property location and status, and your existing home equity.

Lenders are looking for people who have a great property with a substantial enough equity and have the means to pay. Credit score is negligible depending on the lender’s specific requirements.

The best way to find lenders with whom you might qualify for is to reach out to a professional mortgage broker. Good mortgage brokers have years of industry experience and have a huge network of lenders that they can match with specific borrowers based on the factors mentioned above. At Mortgage Central, we’d be happy to discuss your options with you as well as help you get approved for a second mortgage. Contact us soon!

 

What You Have to Know About the Rates of Second Mortgage in Canada

Mortgage rates are not the same throughout Canada. This applies to all types of mortgages including second mortgages. The reasons why mortgage rates fluctuate depend on many factors but location is a major determinant.

Who Sets Second Mortgage Rates?

The second mortgage rates are set by individual lenders within reasonable limits (for instance, they can’t charge above a certain rate without attracting the attention of authorities). These lenders can be banks or private individuals known as private lenders.

Who Lends Second Mortgage in Canada?

The lenders of second mortgages in Canada tend to be private lenders because larger institutions such as banks typically don’t want to bother with high-risk loans. A second mortgage is considered a high-risk loan because the primary mortgage will be the priority for compensation in the event of the borrower defaulting.

Unlike banks, private lenders are willing to take higher risks because they can draw up their own rules (within reason). However, because of the higher risk that they take, private lenders tend to be very location-sensitive and their rates can vary by region.

Rates Vary by Area

Expect that rural rates won’t be the same as city rates because of the risks involved. Basically speaking, higher rates apply to loan that carry a higher risk, such as in the case of rural loans because going after them will also cost more for the lender in the event of a default. Loans for properties in the city are charged a lower rate because they’re easier to manage for the lender.

Second Mortgage Fees

There are a number of fees that you can expect to pay when applying for a second mortgage. Some lenders will ask for 3-5% of the value of the mortgage depending on whether it is a closed term second mortgage or if it is an open term second mortgage.

Generally speaking, you should be ready to pay the following fees if you’re looking to get a second mortgage:

  • Appraisal fees
  • Insurance Fees
  • Legal Fees
  • Notary Fees

Note that lenders won’t lend the full appraised amount and not even the estimated equity because of risks involved. The fees will also be heavily influenced by other factors such as time, location, and real estate market volatility as well as the assessed ability of the borrower to pay. It is best to talk to mortgage professionals in your area to have an idea of the rates to expect as well as which private lenders can possibly offer the most favourable terms. Shopping for a private lender is really the way to go before applying for a second mortgage.

Second mortgage rates in Canada can vary because of several factors. This is why it is important to shop for a lender that can give you the best rates and terms with the help of professional mortgage brokers who have your best interest at heart. Your mortgage can be turned into an asset with the proper help. Talk to us today.

Is It Wise to Get a Second Mortgage?

Getting a second mortgage isn’t as simple as marching to a bank and telling lenders that you want to take a loan against your home equity. Although a second mortgage is just defined as a loan against the equity you’ve built up for your home, getting one is a complicated process that can result to you losing your home if you’re not careful. You should only take a second mortgage if you’re sure that you can handle the terms and that the risks will be worth it for you.

Why Get A Second Mortgage

Most people apply for a second mortgage to finance projects that they don’t have the cash for, such as an expensive home improvement project or extensive home repairs. Some do so to fund big expenses such as a dream wedding or vacation. There are also people who take a second mortgage to save money in the long run, such as when the money is used to consolidate loans with a high interest rate – effectively converting them to a low-interest single loan that is easier to handle.

How a Second Mortgage Can Help You

Whatever your reason is for trying to get a second mortgage, you need to understand how a second mortgage works to ensure that you end up helping yourself by getting it.

Know that a second mortgage gives you a one-time set amount that you have to pay on top of your first mortgage. The payments are a fixed amount monthly and is set until you’ve fully paid off your loan. The downside is that failure to make payments as agreed can lead to your losing your home to foreclosure.

How to Apply for a Second Mortgage

Getting a second mortgage follows a process that is similar to getting a first mortgage. There will likely be an appraisal as part of determining your home equity and then you connect with a lender or a bank to begin the paperwork.

Banks generally take a long time to evaluate your details to determine how much they can lend you. A private mortgage lender might be a better option if you’re not traditionally employed or if your credit score isn’t as good as banks requires it to be.

Is it Wise to Get A Second Mortgage?

Getting a second mortgage shouldn’t be your first financial option when you need cash. Ask yourself if it is possible to simply save up for the huge expense you have to fund. Try to see if your loans can be consolidated some other way. Try to see where you’ll be financially in the future to determine if you’ll be able to pay or whether you’ll be risking going homeless.

Weigh all the pros and cons before making up your mind to apply for a second mortgage. Try to find if there are any other ways to finance your needs. Once you’re sure you want to get one, don’t hesitate to ask for professional help to get the best terms possible. You need to make sure that getting a second mortgage will have a lot of benefits for your situation for it to be a truly wise  decision.

If you feel that you should consult with mortgage experts before you get a second mortgage, do it! Contact us and we’ll be happy to discuss your concerns with you.

Second Mortgage or a HELOC? Which Is Better?

Choosing between a HELOC and a second mortgage can be confusing because both are loans that are attached to your home. Technically speaking, a HELOC and a second mortgage are both second mortgages, because you can only apply for them on top of your primary mortgage…so which is better and how are they different?

HELOC vs Second Mortgage

A HELOC and a second mortgage differs in how they are given by the bank and how they can be repaid. As mentioned earlier, both types of home loans are secured by your home, so it is very important to know how they work and to assess your capacity to pay them to ensure that you don’t end up losing your home.

How Does a HELOC Work?

A HELOC, or home equity line of credit, is a revolving line of credit that can be reused until the set limit is reached for the amount or the time period. Payment for the loan is on top of the primary mortgage and you only have to pay the amount that you use up or took out of the maximum allowable amount.

Because this is a revolving loan, you can re-borrow your paid-for credit until the terms of the HELOC state you can’t anymore. This means that if your HELOC is good for 5 years, you can keep re-borrowing any amount you’ve already paid towards it without the hassle of reapplying for a new loan.

How Does a Second Mortgage Work?

Although a second mortgage is also attached to your home like a HELOC is, the loan is given as a one-time lump sum that you’ll have to pay according to set terms. You won’t be allowed to apply for a new second mortgage until you’ve fully paid your second mortgage.

Because a second mortgage is given as a lump sum, most people who apply for it use it for debt consolidation and/or house deposits. You really have to think a lot and assess your full financial situation before applying for a second mortgage because inability to pay based on agreed terms can make you lose your home.

Is it Smart to Use These Loans as Emergency Funds?

The real answer to this is no. Why? Because with both loans, you’ll end up paying interest and putting your home at risk. Using them as backup cash for something that didn’t happen yet isn’t a good strategy. However, if you’re in a bind now and it can be a few months or more before you can recover, then applying for a HELOC or a second mortgage is a viable option.

Which Is Better?

The best answer for this will depend on your specific circumstances. Just remember that their nature and payment schemes are way different so having a clear idea of your future financial situation is paramount to intelligently choose between a HELOC and second mortgage.

Choosing between financing options can be confusing. This is why you need assistance from mortgage professionals who have a long track record of helping people get approved for loans while making sure that payment terms are doable for you. Contact us today to apply for a second mortgage or apply for a home equity line of credit.

Is A Second Mortgage A Good Financing Option For You?

It is no secret that property values have gone up in Canada in the last 15 years. People living in certain areas like Toronto and Vancouver who bought their homes more than 2 decades ago have more than doubled the value of their properties.

The recent huge increase in real estate market values mean that the equity built in their homes by homeowners have gone up as well, making it a good source of funds that is just waiting to be tapped by getting a second mortgage.

Do You Really Need A Second Mortgage?

Getting a second mortgage is a good idea if you need a substantial amount of cash for financing a college degree for your child or funding a home renovation project. It can pay for any event or expense for which you don’t have the cash in your savings for.

Note that once approved, a second mortgage is still an obligation that has to be paid. Expect that the interest rates will be higher than that of a primary mortgage. You can try to negotiate a lower rate if you have verifiable and consistent income, good credit score, substantial equity, and the luck of having your property in a coveted neighbourhood. There will also be legal and broker fees that you’ll have to pay for the second mortgage to push through.

Who Lends Money for A Second Mortgage?

Private lenders and small financial institutions are the usual providers for second mortgages. They are not easy to seek out and bet, so most individuals who want to get a second mortgage is better off getting the assistance of a mortgage broker who specializes in second mortgages.

How About Broker Fees for a Second Mortgage?

It would be unfair to think that mortgage brokers do nothing to deserve payment for their efforts. The fees are not cheap and this is why mortgage brokers will typically make sure that the other party knows what the fees actually mean before giving an answer.

Broker fees for a second mortgage is affected by several factors such as how much time the broker will have to spend to secure the second mortgage and how much money is being borrowed. Generally speaking, the bigger the money being borrowed, the lower the broker fees are for the second mortgage in terms of percentage. Note that legal issues such as eviction, foreclosure, or marriage separation will mean a higher broker fee.

Will Appraisal Be Required?

It is typical for a lender to prefer a personal inspection of the property to ensure that it is worth the risk for the lender. You may choose to get your own appraisal though most lenders will have a list of professional appraisers that they trust.

Should You Hire a Lawyer?

Though you might feel that you don’t need the services of a lawyer to save on legal fees, getting a lawyer to review your second mortgage’s terms and ensure that everything is in place will protect you in the long run. The fees can range from $1,000 to $2,000 but it is an investment that will ensure you don’t have to pay for things that you were not informed about prior to signing the terms for your second mortgage.

We hope that this write up was able to answer most if not all of your questions about getting a second mortgage. Should you have more concerns that were not addressed in this, feel free to talk to us at Homebase Mortgages.

Looking for a professional mortgage broker to help you get approved for a second mortgage? Fill up our contact form and we’ll get back to you soon!

What is a Second Mortgage And How Will It Work?

A second mortgage is another loan taken with a different mortgage lender on a property that has an existing mortgage. The person who applied for the mortgage must still pay the primary mortgage with the addition of also having to pay for the second mortgage.

Reasons Behind Higher Interest Rates On A Second Mortgage

When a property is mortgaged for the second time, the lender who gives the loan takes on more risk because he/she is only in the second position to have a claim on the property. An illustration of this is when a homeowner fails to pay, the property will be taken into possession and the first mortgage’s lender will be paid out first. This means that the second mortgage’s lender may not get paid in full or not paid at all. This is why the interest rates for second mortgages are almost always higher then what is charged for a principal mortgage.

Why Do Canadians Get A Second Mortgage?

The usual reasons for getting a second mortgage are as follows:

  • To fund a home renovation
  • To have cash for unexpected expenses such as medical emergencies
  • To pay for high interest debts therefore consolidating those debts
  • To fund expensive tuition fees for post graduate studies or college
  • To have cash for a dream wedding or vacation

What Are the Advantages and Disadvantages of a Second Mortgage?

As with all types of loans, second mortgages have a set of advantages and disadvantages. Below is a summary of each to help you make a better informed decision.

Second mortgage advantages are:

  • It is easier to apply for because there are many providers for it like private mortgage lenders, credits unions, and banks.
  • You can tap up to 80% of your home’s appraised value provided the existing balance you have for your first mortgage has already been subtracted.
  • It is available in 1-year terms and most require interest-only payments.
  • There is no need to discharge your current mortgage so you won’t be charged penalties and fees for such.
  • Anyone who owns a home with a primary mortgage and a decent credit history can apply and be approved for a second mortgage.

Second mortgage disadvantages are:

  • You have an increased risk of foreclosure in the event that you default on your loan. The second mortgage lender can foreclose your home by purchasing the first mortgage.
  • Because it poses more risks for the lender, a second mortgage has a higher interest rate.
  • Repayment might be required in as little as a year but you’ll be bound by terms which can last as long as 30 years.

How Can Someone Qualify for A Second Mortgage?

Each lender has their set of terms before they approve your second mortgage application. They will look for the following:

  • Equity that is high enough to be worth the investment risk.
  • Income that is substantial enough for you to be able to make payments.
  • Credit Score that is good enough to qualify for a lower interest rate. They might consider those with a less than appealing credit score but they will surely charge hefty interest rates.
  • Property desirability is important. Lenders need to be sure that should you default on your payments, your property has good enough value on the market so they can cover their possible loses.

A second mortgage will greatly help you financially if you are cash poor but possesses substantial equity in your property. Allow our mortgage professionals to help you apply for a second mortgage by contacting us soon!

Reasons to Get a Second Mortgage

It seems that getting a second mortgage is very popular these days, but why are people getting a second mortgage, to begin with? Is it a safe or a wise decision to do it when you’re not yet paid with your first mortgage? We have answers (and more) below!

First, What is a Second Mortgage?

Investopedia defines a second mortgage as a subordinate mortgage that is approved while the homeowner has another mortgage in effect.

This type of mortgage is backed by your home; which is why it is required that you have some equity before you can apply for it. By applying for a second mortgage, you’ll be able to refinance up to 85% of your home’s value, freeing fund to use for other purposes.

It is the freeing of some funds that is the main reason why most people apply for a second mortgage. Once they are approved, they usually use it for the following:

For Investing

It is no secret that you need money to make more money. In the case of investments, the bigger capital you put in it, the larger the gains that you can get.

For Further Schooling or Self Investment

Getting ahead in life for most people means needing to have the credentials for some positions, hence the need for further schooling. In some instances it is needed for a career change or just to be a better version of one’s self. Unfortunately school is not cheap and requires a significant investment on your part. If you qualify for a loan and have the means to pay the future monthly payments, why not go for it?

For Investing in a Second Property

Buying a second property for a vacation home, a rental, or an investment property requires some capital as most banks ask for a minimum 20% downpayment. Tapping into the equity of a home you already own allows you to come up with the funds for this quickly. By doing this, you van effectively grow your assets as long as you won’t default on your monthly payments.

For Paying Debts with a High Interest Rate

Credit card companies can charge as high as 30% interest on your balance. This is a lot of money that simply goes to the banks, burying you deeper in debt. By taking a second mortgage to pay loans like this, you can pay your way out of debt faster.

For Funding a House Renovation

Spring is just a few months away or perhaps you will want to get renovations done before winter. You will need a substantial amount of money to make this possible. Taking a personal loan for this purpose is usually met with a rejection but with a second mortgage, you can get what needs to be done completed by the time you want it. This is especially handy for repairs and renovations that preserve the home such as a roof replacement.

How to Get a Second Mortgage?

Getting a second mortgage is not as challenging as most may think more so if you get the help of a licensed mortgage broker. Our mortgage professionals at Mortgage Central Nationwide will help you throughout the process of mortgage application until you finally qualify for a loan. We will ensure that your mortgage will have the lowest possible interest rate and that the terms will be exactly what you can manage so you won’t fall behind on your monthly payments. Simply contact us at your earliest convenience.

 

When (and How) to Use Second Mortgages

Determining when is the right time to take advantage of your home equity is a tough decision for most homeowners. Some worry that they may not be able to pay back a second mortgage and some don’t apply for a second mortgage because of fear that they won’t be approved or that the process would be too difficult.

The truth is, using a second mortgage is a powerful financial tool that homeowners can use to their advantage, more so if they are struggling to get approved for an unsecured loan.

Why Apply for A Second Mortgage

People get second mortgages for a variety of personal reasons, mostly when they need a significant amount of money quickly. Reasons usually range from wanting to invest in another property, having a tough time financially, wanting to renovate their home, consolidating credit card debt, or securing bridge financing. Add to this the fact that the interest rates for second mortgages are currently very low, then the appeal of getting a second mortgage is understandably quite strong.

Assess If You Really Need A Second Mortgage

Second mortgages come with good benefits but is still a huge financial responsibility. It is only smart to try to look for other options that may be better and with fewer risks. After all, using your home as a collateral is not to be taken lightly. You can take a look into possibly opting for a personal loan or a cash advance. They do come with strict requirements such as having a good credit and a stable job and have a higher interest rate, but if you only need a small amount, then they can be better options for you.

If your needs can’t be met by the other options above, or if your qualifications for their requirements are a bit lacking, then a second mortgage would be the right choice  for you. Ask yourself if you can afford paying off the second mortgage and what are you going to so should you decide to sell the house later. It’s about anticipating your future needs and planning ahead too.

Second mortgages do come with attractive benefits too, such as low interest rates, can be easier to pay off, and with more borrower-friendly application. Another thing is that because they are secured through your equity, you will be able to borrow a larger sum as compared to other types of loans.

How to Secure A Second Mortgage

You can get a second mortgage by applying to a trust company, a major bank, or a private mortgage lender. Generally speaking, the best interest rates are offered by banks although their requirements are often very strict. Your best option if you can’t meet most banks’ lending requirements is approaching a private mortgage lender or a trust company.

Choosing which one would be best for your needs and means can be very tricky. The process may also require more paperwork than you think. That is where professional mortgage brokers like us from Homebase Mortgages come in. We take care of the details to ensure you are well taken care of and you get approval for your application the soonest time possible.

Need more answers about when and how to get a second mortgage? Let us help! Contact us today!

How do Second Mortgages Work?

If you need money and own a home, you can get a second mortgage! Do you need to remodel your home, have bills that you need to pay or many a big ticket item that you want to buy? If so, a Canadian second mortgage could help you get the money you need today for a better tomorrow. Here we’re going to talk about how these work and why you should work with a Toronto mortgage broker like us to get the best deal. Let’s get started.

What is a Second Mortgage?

A second mortgage is a lot like your first mortgage, but a little different. Depending on how much you’ve paid off from your first mortgage, you may be able to delay payment on your second mortgage for up to 25 years. This is where it pays to understand all of the terms of your mortgage, and why you want to work with a Toronto mortgage broker to make things work out in your favour.

When you apply for a second mortgage, you’ll need to fill out paperwork like you did for your first mortgage; you will need to bring some identification documents with you, but we can help you know which one of these you’ll need. After that, we’ll help you go over your application and figure out what areas need improving and if this is the right time to apply for a mortgage. You may want to work on your credit so you can get the lowest interest rate possible (up to 2.75% in some cases!)

Aren’t Second Mortgages Expensive?

This will really depend on the type of lender you go with and their attitude towards you. If you have poor or bad credit, you may be better off avoiding more traditional lenders. This way you’ll be able to get the financing that you need without any of the hassles of being paired with the wrong lender. If you’re looking for a quick loan that you can pay off in a short term (shorter than many 25 year mortgages go anyway), you may want to choose a conventional lender.

Is a Second Mortgage Right for You?

It’s hard to evaluate your case; everyone is different and has their own unique needs! This is why it’s important to evaluate why you want to take out this loan. Speak with one of our Toronto mortgage brokers to see if this is the right choice for you. Some common uses for second mortgages are:

Home Repairs and Remodels: a home repair and remodel can go a long way towards making sure your home is ready to be sold.

Paying off Debts: From credit card debts to private hospital bills, home equity can help you cover it. If you’re in the process of debt consolidation you may need a lump sum for settling your debt.

Bridge Financing: if you’re in the process of buying a home and selling a previous one, you can get a special kind of second mortgage known as a “bridge mortgage” to help you fill in the financing gaps.

Looking to apply for a second mortgage? Click here!