Have you ever asked yourself if you could still get a new mortgage even if you’re still not done paying for the first? Well, this time you can make it possible to apply for a new mortgage. Basically, second mortgage means you get a second loan that is secured using the equity of your home as collateral.
How does a second mortgage work?
Most of the time the second mortgage is taken from a different lending institution. The amount that you can borrow for your second mortgage should not exceed the 80% current market value of your home. If your house currently has a market price of $350,000 and you have a $100,000 outstanding balance for your first mortgage, you can get as much as $180,000 for your second mortgage.
Getting a second mortgage doesn’t mean you are excused of paying your balance in your first mortgage. You must still continue your monthly payments diligently.
For lending institutions, providing you with a second mortgage is a risk they have to take. In the event that you default on your mortgages, your first mortgage must be paid first before your second mortgage benefits from your home equity. Because of this risk, only a few lenders provide this service. However, there are private mortgage lenders or high risk mortgage lenders in Ontario that are willing to offer you acceptable rates and terms for a second mortgage.
Do I need a second mortgage?
When you have a second mortgage, you have access to a sizeable amount of money that you can use in any way you want. You must not waste the convenience that you with this mortgage. Use the money you borrowed to your advantage, so you would also have great returns in the future.
A second mortgage is a good option if you want to finance the renovation of your house. Whether you want to extend your kitchen area or improve your landscaping, refurbishing your home increases its value. This way, you can actually add more value to your equity.
Most homeowners also get a second mortgage to consolidate their debts. When you keep getting confused with the various debts you need to pay monthly, you can manage them all at once using your second mortgage. Pay off your credit card debt, auto loan debt, or even your outstanding balance for your student loan in a single monthly payment. When you consolidate your debt, you can be able to save even more money since your second mortgage loan comes with a lower interest rate compared to your other debts.
Because you have the freedom to choose what to spend, you can also use your second mortgage to fund your vacation, auto loan, or any other purchase.
How to get a second mortgage?
Since there are only a few banks and traditional lending institutions that offer second mortgages, they have to consider four factors.
The first one is the current value of your equity. If you have built up a significant amount of equity in your home, you have higher chances of qualifying for a second mortgage. Another factor that they will look into is your income. Lenders have to make sure that you have a stable and sufficient flow of income. This makes them somehow assured that you have the capacity and the means to repay your mortgage. The third factor that they will consider is your credit score. An excellent credit score automatically entitles you to a lower interest rate. On the other hand, having a bad credit may not even give you a chance to be qualified. Lastly, lenders will also look at your property. Since you will be using it as a collateral, lenders want to secure that your property is a good purchase.
For more information about second mortgage, you can contact us at Private Mortgages Canada today! We can help you understand how you can qualify for a second mortgage and how you can use it strategically.