2019 Guide to a Second Mortgage in Ontario and the GTA

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Spring is here! Like many other individuals, you may be contemplating about getting a second mortgage this year and asking yourself whether it will be worth it as well as what are the things you need to know. Well, you’re in luck today if you’re seeking more information about second mortgages!

Second Mortgage Definition

A second mortgage is a secured loan, with the security being the value of the homeowner’s property. It is not the same as a primary mortgage and is paid separately. A second mortgage is also the term used for any other loan secured by the home’s equity no matter how many similar loans there are.

A second mortgage is considered a mortgage because the term refers to any loan secured by real estate as collateral and need not be used for the purchase of the home itself.

As mentioned earlier, the term second mortgage applies to any home loan taken after the primary mortgage. If a second mortgage is subject to foreclosure, the primary mortgage is paid off in full first and what is left is used to pay the second mortgage.

Second Mortgage Rates

Rates for second mortgages can vary from lender to lender. An upside is that the interest rate is markedly lower than other options for loans such as unsecured personal loans or credit cards. This is because a second mortgage is backed by home equity; hence, there is some security for the lender. In comparison to a primary mortgage, the interest rate for second mortgages is still a bit higher because they carry more risk with everything considered.

Some second mortgages may have a fixed interest rate and some may have a variable rate. Having a variable rate mean that rates are adjusted from lower to higher based on market condition. Having a fixed rate just mean that payments are predictable because the interest rate remains the same throughout the course of the loan.

Types of Second Mortgages

There are 3 main types of second mortgages, home equity loans, piggyback loans, and home equity lines of credit.

  • A piggyback loan is a way to save money by splitting the purchase of the home into 2 different loans.
  • A home equity line of credit is a loan from which you can draw from many times over as you need.
  • A home equity loan is a lump sum loan taken against the value of the house.

Get a Second Mortgage in 2019

Second mortgages under HELOCs and home equity loans require that the homeowner owns a significant value of equity in the property. Some lenders require a specific credit score, income bracket, steady employment, and other data. Some lenders are more lenient and will lend money to someone who may be self-employed or have bad credit. You just have to understand the terms and make sure to read any fine print before getting a second mortgage from a lender.

Are you applying for a second mortgage soon? Contact us and we’ll help you assess whether it is the right type of loan for you! Wherever you may be in Ontario, the GTA, or Canada, our mortgage professionals are within easy reach. Talk to us soon!

Your 2022 Second Mortgage Checklist

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Do you know that now is one of the best times to get a second mortgage in Canada despite concerns over the contrary? The risks are not worth sweating over if you take the time to understand what a second mortgage is and only decide after identifying the best type of second mortgage that may work for you.

Second Mortgage Primer

A home loan that you take which is secured by your home equity is the definition of a second mortgage. It is called as such because unlike the primary mortgage which gets first priority in the event of you defaulting payment, it only comes second.

A second mortgage can allow you to access a maximum of 80% to 90% of your home equity. The maximum limit is determined by the type of loan you’ll apply for as well as how much the lender will approve knowing that most people who get a second mortgage simply want to avoid the fees associated with refinancing and the fees incurred by breaking a current mortgage.

Why Apply for a Second Mortgage?

Most people cite debt consolidation, home renovation, or higher education when asked for a reason why they’re applying for a second mortgage. In a nutshell, a second mortgage gives a homeowner more elbow room to maneuver in when fixing his or her finances in the long run.

Types of Second Mortgages

There used to be a time when second mortgages were perceived as a desperate choice for financially desperate people. Thankfully, that misconception has been cleared up. More people understand now that second mortgages come in various forms that have their own set of advantages and disadvantages.

A HELOC is a great choice for someone who needs recurring access to a significant amount of money because it allows the homeowner to keep accessing the loan as long as parameters are met. As a form of revolving credit, a HELOC is a flexible loan product that gives homeowners the freedom to spend what they need whenever they need within the limits of the loan.

Those who need a lump sum may choose to get a home equity loan. This is especially helpful for those who need money for a huge renovation or debt consolidation.

What Are the Risks of Second Mortgages?

Second mortgages typically come with a higher risk for both lender and borrower as compared to a first mortgage. This is mainly why lenders impose a higher interest rate for a second mortgage as well as have stricter requirements before giving approval. Lenders have to pay higher insurance for a second mortgage to make sure that they are covered in the event of the homeowner going bankrupt. As for the homeowners, a new debt on top of an existing one will always make things riskier.

Is It Time for You to Get a Second Mortgage?

Assess whether you truly need a second mortgage and whether you can qualify for one. Note that requirements vary from one lender to the other. Try to gauge if the risks will be worth it for you. Better yet, contact us at Mortgage Central to talk to our mortgage professionals. We’ll be able to answer your questions to help you make an informed decision.