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At Toronto Mortgage Brokerage we do not pressure you into making a decision so that we can earn off of you. Being our valued customer, we hold your best intentions when advising you and making changes. A second mortgage is a serious decision and should be made wisely. By working with us, you will also get the lowest possible rate for your second mortgage and you won’t be charged with ridiculous fees like you will be at some of our competitors. Depending on the amount that you need and for the time that you need for, we will create a unique solution for you. Contact us today to discuss getting your second mortgage..
Second Mortgage Benefits
People get a second mortgage or even third, typically to consolidate debt without disrupting their first mortgage. There are many of other reasons however as well. The main benefit is that a second mortgage can become a fantastic source for additional money to flood in. Nonetheless this second mortgage will have to be paid off eventually. Before any funds go to paying off the second mortgage, the first loan would need to be taken care of completely.
Reasons to Get a 2nd Mortgage:
- Home Inprovements
- Mortgage Arrears
- Tax Arrears
- School Tuition
- Creating a home equity line of credit
- Purchase extra property
We Make You Aware Of Pros & Cons
If you are in need of extra cash and feel that a second mortgage is the way to go then let us help you at Toronto Mortgage Brokerage to go through the process of getting it correctly.
You have to keep in mind that there are risks involved as with any loans and because of that it is very important to turn to a reliable professional.
We Educate You About The Options You Have
If you have already paid off a portion of your home and/ or the market value of the home had risen then you are especially a good candidate for a second mortgage.
Even if this is not the case for your situation, then there are still options that we can provide for you.
Second Mortgage Info
What Is A Second Mortgage?
A second mortgage is a loan that uses the equity on an already mortgaged property as collateral. Equity is the difference between the market value of your property and the amount that you owe. Equity grows over time as the market value of the property increases, and as you repay the capital on the loan.
A portion of every mortgage repayment comes off the capital raising the equity. A home owner may decide to use the equity in his home to finance other projects. The loan that he takes out is a second mortgage as he already has a first mortgage.
The interest rates on a second mortgage will be higher than the interest rate on your first. This is because the first mortgage takes precedent over the second. The second mortgage is paid only once the first has been fully covered. This means that the second mortgage holder carries more risk than the first since he may not fully recover the loan if the borrower defaults.
When you take out a second mortgage you can borrow up to 80% of the equity in your home. The main benefit of the second mortgage is that property owners can obtain large sums of money at relatively low interest rates.
How Do Second Mortgages Work?
Second mortgages are financial instruments which allow property owners use the equity in their property to secure a second loan.
They come in more than one format. You can arrange a single lumpsum payment where you typically pay back the capital in set monthly payments. The capital, the interest rate, the repayments and the repayment term are all included in the contract. Once you have paid off the mortgage, you would have to conclude another mortgage contract if you wanted to borrow against your home equity again.
Many home owners use their home equity to secure a Home Equity Line of Credit or HELOC, which is basically revolving credit. When you have a line of credit the money is available when you need it. You don’t have to use it and you won’t pay interest on it until you do. The lender sets a top limit and you can borrow and repay it as it suits you. You only pay interest on the amount that you owe.
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Use a Second Mortgage to Pay Off High Interest Debts and Lower Monthly Payments
|Current Mortgage||Second Mortgage|
|Current Home Value $400,000||Current Home Value $400,000|
|$200,000 Existing 1st Mortgage = $1,165/month||$200,000 Existing 1st Mortgage = $1,165/month|
|Before Taking Advantage of Home Equity||$50,000 2nd Mortgage = $250/month|
|$20,000 Auto Loan @ 10.0% = $430/month||Auto Loan = Paid|
|$20,000 Credit Card @ 18% = $600/month||Credit Card Debt = Paid|
|$10,000 Store Card @ 28% = $300/month||Store Card Debt = Paid|
|Total $2,495/month||Total $1,415/month|
Reasons Why It Might Be Right For You
There are many reasons that property owners obtain a second mortgage. We’ve listed a few below
- Buying another property – buying to rent is often a good investment decision since you can use the rental to help pay off the mortgage. The problem is often finding the money to make the down payment. A second mortgage could be the answer.
- Investing – you may need the money to start a business or to take up an investment opportunity.
- Consolidating debt – Many people use a second mortgage to pay off more expensive unsecured debt. This is because the interest rates on a mortgage are considerably lower than the interest that you will pay on a credit cards or other unsecured loans. The lower interest rates reflect the lower risk of secured loans.
- Renovations or upgrades to property – It makes sense to use a second mortgage to improve the value or condition of that property
- Education – property owners use may use a second mortgage to upgrade their skills or fund their children’s education.
Second mortgages give property owners financial flexibility at a relatively low rate or interest.
Frequently Asked Questions
How Does a Second Mortgage Work?
Superficially, a second mortgage works much like a first one. You will borrow a sum of money from a lender based on the value of your home. You will then need to repay this principal amount, along with the interest, over a set period of time. The difference is that you will now effectively be being off two mortgages on the same home that may or may not be of equal value.
Another difference is that should anything happen that causes you to become unable to pay off your mortgage and the bank takes possession of your home, the first lender will be compensated first. Only if anything is left will the second lender be compensated. This is why requirements are often stricter on second mortgages and the rates are higher.
Why Get a Second Mortgage?
Is there anything that costs a large amount of money that you want to buy but you just don’t have the money on hand? Yes, you could also buy it on credit. However, large purchases like a boat, a new car, or that massive renovation project may not be available on credit or the interest rates can be much higher than compared to a mortgage from a bank or lender.
If you are in this situation, getting a second mortgage on your home might be the best option. Your interest rate payment will be slightly higher than your first mortgage but should still be better than buying on credit, opening a line of credit, or a vehicle/chattel loan. As your home is a “fixed asset”, you also know that your collateral is safe and sound as long as you can keep up your payments.
How do I Qualify for a Second Mortgage?
The process to apply for a second mortgage will be very similar to applying for a first mortgage and any broker or lender might offer a second mortgage. However, there are usually fewer lenders willing to do so as not everyone is equally risk-tolerant.
The requirements for a second mortgage will also be higher than for your first mortgage. Because you already have a mortgage to your name, your debt-to-income ratio will naturally be higher from the onset.
The following factors will play a big role:
- Credit score: You will need a good credit score that’s at least 600 but preferably between 700-900 for most lenders.
- Equity: This refers to the amount of your home’s value that’s technically no longer mortgaged. The closer you are to fully owning your home and amortizing your mortgage, the better.
- Income: Lenders will be even stricter on a stable source of income that’s sufficient to cover your debts for the foreseeable future.
Let Us Help You Secure Your Second Mortgage
With a wide range of products, a client-focused mentality that aims to get you the best solution, and highly knowledgeable experts – we’re in the ideal position to help you secure the best second mortgage.
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