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!