Second Mortgage – Things to know
Are you one of the many Canadians looking to get an access to a lump sum of money to against your property? You may want to consider Second Mortgages. Here is the lowdown on Second Mortgages in Canada. Also, it is important to select qualified Mortgage Agent.
What is a Second Mortgage?
A Second Mortgage is an additional loan taken against your property that is already mortgaged. It is termed as a Second Mortgage as the initial loan taken for the purchase of the property will be considered as the first loan.
Types of Second Mortgages
Second Mortgages come in two different forms.
Home Equity Loans:
This refers to a loan when a lender provides a lump sum of money, all at once, based on the equity of your home. The loan will be repaid in fixed monthly instalments installments (American English).
Home Equity Lines of Credit:
Home Equity Lines of Credit or HELOCs are similar to credit cards where an individual can draw money multiple times until it reaches the maximum limit. Individuals can repay the loan and once again borrow from HELOCs. Individuals are to repay only that amount which has been borrowed.
In Canada, an individual can take up 65% of the value of the home/property through a Home Equity Line of Credit.
Interest Rates for Second Mortgage
When it comes to Second Mortgages, lenders face a higher risk. This is because they are second in line for the possession of your property in case of any default. If an individual default on the payment and the property is liquidated, the lender in the first position will be compensated first, followed by the second lender. This puts the second mortgage lender at a higher risk of not getting the complete compensation.
This is the reason why Second Mortgages often have higher interest rates. However, second mortgages do have lesser interest rates than other personal loans.
Second Mortgage Uses
While the reason for getting a second mortgage varies from an individual to individual, here are some of the common reasons most Canadians choose Second Mortgages.
- Use Second Mortgage for Debt Consolidation (Consolidating your debt refers to combining all your high-interest debts – auto loans, credit card debt and others – into a single low-interest mortgage loan.)
- Home Improvements and renovation
- New Car purchase
- Meet medical expenses or other unforeseen expenses
Qualification for Second Mortgage
Equity: When you choose a Second Mortgage by using your home as collateral, you will be provided with the loan amount on the basis of the equity you own in your home.
Equity refers to the balance between your original mortgage amount and the current value of the property. An individual’s equity may be increased by an increase in market value and monthly payment.
The larger your equity, the better chances you have of getting a second mortgage.
Income: Lenders will verify an individual’s earning capacity and income to ensure that he/she is capable of meeting the monthly payments.
Credit Score: An individual with a higher credit score will have a better chance of getting approval for their mortgage request.
Second Mortgage Lenders
When it comes to acquiring Second Mortgages in Canada, an individual can approach the following organizations:
- Trust Company
- Major Banks
- Private Lenders
The interest rate provided by these organizations varies. Where Trust companies and banks may have a lesser interest rate, they are bound by strict rules. Private Lenders may be lenient in their rules and regulations but will have a higher interest rate.
Contact us to get Second Mortgages Mississauga.
Get prepared with all the documents and consider at least three options before choosing your Mortgage Partner. Analyze your individual capacity and understand all the costs before making a financial decision.