Mortgage rates are not the same throughout Canada. This applies to all types of mortgages including second mortgages. The reasons why mortgage rates fluctuate depend on many factors but location is a major determinant.
Who Sets Second Mortgage Rates?
The second mortgage rates are set by individual lenders within reasonable limits (for instance, they can’t charge above a certain rate without attracting the attention of authorities). These lenders can be banks or private individuals known as private lenders.
Who Lends Second Mortgage in Canada?
The lenders of second mortgages in Canada tend to be private lenders because larger institutions such as banks typically don’t want to bother with high-risk loans. A second mortgage is considered a high-risk loan because the primary mortgage will be the priority for compensation in the event of the borrower defaulting.
Unlike banks, private lenders are willing to take higher risks because they can draw up their own rules (within reason). However, because of the higher risk that they take, private lenders tend to be very location-sensitive and their rates can vary by region.
Rates Vary by Area
Expect that rural rates won’t be the same as city rates because of the risks involved. Basically speaking, higher rates apply to loan that carry a higher risk, such as in the case of rural loans because going after them will also cost more for the lender in the event of a default. Loans for properties in the city are charged a lower rate because they’re easier to manage for the lender.
Second Mortgage Fees
There are a number of fees that you can expect to pay when applying for a second mortgage. Some lenders will ask for 3-5% of the value of the mortgage depending on whether it is a closed term second mortgage or if it is an open term second mortgage.
Generally speaking, you should be ready to pay the following fees if you’re looking to get a second mortgage:
- Appraisal fees
- Insurance Fees
- Legal Fees
- Notary Fees
Note that lenders won’t lend the full appraised amount and not even the estimated equity because of risks involved. The fees will also be heavily influenced by other factors such as time, location, and real estate market volatility as well as the assessed ability of the borrower to pay. It is best to talk to mortgage professionals in your area to have an idea of the rates to expect as well as which private lenders can possibly offer the most favourable terms. Shopping for a private lender is really the way to go before applying for a second mortgage.
Second mortgage rates in Canada can vary because of several factors. This is why it is important to shop for a lender that can give you the best rates and terms with the help of professional mortgage brokers who have your best interest at heart. Your mortgage can be turned into an asset with the proper help. Talk to us today.