Tips and Information About Getting A Second Mortgage

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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.

 

Best Home Equity Loan Options for You

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Living on a fixed income can be quite limiting. You face challenges that hamper opportunities to enjoy life, create a better life for yourself, afford unexpected huge expenses such as medical emergencies and so on. The good news is, you’re sitting on a lot of money if you own your home or have built quite a sizable home equity. This is money that you can borrow to pay for expenses that can’t be covered by your savings or fixed income. Find out more about how you can make your home equity work for you below!

What is a Home Equity Loan?

Your home equity is the value that you own in your home. It is the difference between your home’s current market value and what you still owe. If your home is currently worth $700,000 and you still owe $35,000, then you have a whopping $665,000 home equity!

Although you may not be able to sell your home equity, you can certainly build on it over time. Because it is the value that you own, you can use it as collateral to take out a home equity loan such as a second mortgage or a home equity line of credit.

A home equity loan is a type of loan that uses the equity you’ve built up in your home as collateral. Because it is a secured loan, borrowers often enjoy lower interest rates and larger loan limits as compared to unsecured loans. Depending on the lender and the home equity loan option you choose, you may also enjoy flexible payment schemes.

What is a Second Mortgage?

A second mortgage is a home equity loan that you take on top of a primary mortgage. It comes with a set schedule of payment as well as penalties for inability to pay on time. Note that a second mortgage does not erase or nullify a primary mortgage but is another mortgage that you have to pay off. It can be better than other types of loans because the requirements are often lenient towards people with bad credit or those with low income. The money you borrow will be released as a lump sum which makes this type of home equity loan perfect for a one-time big expense such as funding a home renovation.

What is a HELOC?

A home equity line of credit gives you a line of credit with a set limit from which you can borrow as much or as little as you need. It also allows you to reborrow the money if you pay it back. Unlike a second mortgage, a HELOC often requires a reliable income and relatively good credit. A HELOC is best for recurrent significant expenses such as paying for college tuition or hospital treatments.

The best type of home equity loan for you largely depends on your financial needs and your means to pay. If you’re undecided whether to apply for a second mortgage or apply for a HELOC, contact us and we’ll be glad to discuss how to best use your home equity.