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.
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.