10 Things You Must Know About Second Mortgage in Canada

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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!

Should You Choose Home Equity Loans VS Home Refinancing?

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Interest rates for mortgages are projected to remain low until 2023 and so homeowners are understandably trying to take advantage now by tapping into their home equity. The question is, what is a better way to use home equity? Should you go for refinancing your mortgage or opt for a home equity loan?

Watch Out for Prepayment Penalty

One important thing to consider is having to pay a prepayment penalty. If you break your mortgage before the term is up for any reason, you can be charged a prepayment penalty. This remains true even if you are refinancing your mortgage with the same lender. This fee can range from a few thousand to tens of thousands of dollars because factors such as your interest rate, years left to pay, and more are considered. You need to consider this fee to make sure that you would not be in worse financial situation after refinancing.

Because of the above, more Canadians are leaning towards taking a home equity loan rather than refinancing their mortgage. A home equity loan is a loan taken against one’s home equity and is given in a lump sum to give people more freedom and fast access to a large sum of cash.

Why Get A Home Equity Loan?

There are many benefits to getting a home equity loan and one is avoiding prepayment penalties associated with a mortgage refinance. With a home equity loan, you can keep your first mortgage and just get another mortgage on top of it so you will not be breaking your first mortgage. This way, the slightly higher interest rates are justified and you can still end up saving more versus a mortgage refinance.

Another benefit of a home equity loan is flexibility. Home equity loans can be customized to meet your needs. Your lender can match your term on your existing mortgage and more. You can be offered interest-only payments or a custom payment plan that could match your finances.

A home equity loan is also markedly quicker than a mortgage refinance and can be processed and approved within days. More so, there is no mortgage stress test required for a home equity loan. There is no need to requalify with current mortgage stress test guidelines.

As for other benefits associated with a home equity loan, you can use it for a variety of uses. You can use it to pay for home renovations, pay for debts for debt consolidation, use it to fund a business, buy an investment property or a second home, pay for tuition, spend on a wedding, and many more.

How to Get A Home Equity Loan?

Contact us at Mortgage Central Canada for a consultation if you are not sure about getting a home equity loan. We can help you assess which loan type may be best for you by discussing the pros and cons of each type as they relate to your situation. Borrow against your home equity with confidence today! Apply for a home equity loan with us.

 

 

Can a Second Mortgage Work for COVID Relief?

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Lots of people are struggling financially these days as financial relief from government agencies and institutions are running out. The reality is that even if the COVID-19 pandemic comes to a complete halt tomorrow, it will take at least a few months for businesses and the economy to pick up and go back to normal. What, then, can someone do to get through it?

Get a Second Mortgage Now? Is This a Good Idea?

Before the pandemic, people usually get a second mortgage to pay for a down payment, consolidate debt, or pay for home renovation and home improvement projects. This is because a second mortgage is a way to access a large sum of money with relatively lower interest compared to bank loans such as using credit cards, borrowing a personal loan, or getting a business loan. This is possible is because a second mortgage is a loan that is backed by home equity and hence has a lower risk of nonpayment compared to an unsecured loan.

The above is not to say that a second mortgage has no risks and interest fee, it is just that it is easier to manage a second mortgage because of more affordable fees. Note too that although it less risky for a lender, a second mortgage carries a high risk for the borrower, as failing to pay within the terms can result in losing one’s home.

Is it a good idea to get a second mortgage now? The general answer is yes. If you have a stable job or are sure that you can secure a steady source of income soon and need a huge amount of money to tide you over for the next few months, then yes. If you are someone who has no job, no source of income for a few months to years, then the answer is no. Even a mortgage professional needs to know more about your specific circumstances to give a tailored answer to you. A lot of factors need to be considered before getting a second mortgage.

How Does a Second Mortgage Work to Access Money?

If you own a home or has been paying towards your primary mortgage, you have home equity. The more payments you’ve made towards your home, the higher your home equity is. Home equity represents the value of your home that you actually own. You can estimate it by subtracting any remaining debts from your home’s current real estate value. To access that value, you can either sell your home or get loan using your home equity. If you get a home equity loan while still paying your primary mortgage, then it is called a second mortgage because it goes on top of your first mortgage. You can choose to access the money as a lump sum via a home equity loan or get access through a line of credit with a HELOC.

Second Mortgage for Funds Covid-19 Pandemic

Given the above information, we can say that it might help you to access funds via a second mortgage to pull you through these challenging times. Is it the best financial move? Only you can decide that after consulting with us at Mortgage Central Canada. What we can do is to provide you with information for you to make an informed decision that will benefit you in the long run. Talk to us at your earliest convenience. Contact us if you’re serious about getting a second mortgage.