Your Must-Know Checklist About Second Mortgages

If you’re undecided yet whether you should get a second mortgage or not, now is one of the best times to get a second mortgage in Canada. You just have to be sure that you fully understand what it means to get a second mortgage and what options will be best for you. More about second mortgages in Canada below!

Getting a Second Mortgage

Unlike your first mortgage, a second mortgage is a loan that is secured by the equity of your home. It is named ‘second mortgage’ because it comes as a second priority to your primary mortgage. People get a second mortgage to access as much as 80-90% of their home equity depending on the type of second mortgage they apply for. People usually opt for a second mortgage when they are still paying their primary mortgage and don’t want to refinance their mortgage due to expensive fees associated with breaking a current mortgage.

Purposes for a Second Mortgage

There are many uses for a second mortgage. The most common reasons are paying for education, consolidating debt, or funding a home renovation project. The main reason for using a second mortgage is to take advantage of the specific benefits that each type of second mortgage has, to help someone better manage his or her financial needs.

Types of Second Mortgages

Far from being a choice for desperate people, applying for a second mortgage is a smart decision if you know how to make a mortgage work for your advantage.

You may choose to get a HELOC or a home equity line of credit if you know that you’ll have several recurrent big expenses coming up because a HELOC will allow you to borrow for as many times as you want or need as long as it doesn’t exceed set limits. It works as a revolving credit so you can pay what you can afford in between each time you borrow, making a HELOC a bit like a credit card but your credit limit is the ceiling assigned to your home equity loan.

You may choose to get a second mortgage or a home equity loan to have access to a lump sum if you need a big amount of cash in one go, such as when you need money for funding a home renovation or when you need funds for a huge investment or debt consolidation.

Risks of Second Mortgages

Lenders typically view that a second mortgage carries more risks for them so it is understandable that lenders impose a higher interest rate for a second mortgage or have strict requirements regarding who to lend money to. This is why big financial institutions prefer other types of loans and why it is easier to get a second mortgage from a small lender. Second mortgages have a higher risk of not getting paid because the primary mortgage is the priority.

Should You Get a Second Mortgage?

The first step that you should take is to fully assess your financial situation to determine if you can qualify for a second mortgage. Note that different lenders may have different requirements so asking for help from mortgage professionals won’t hurt. Understand that a second mortgage goes on top of your first mortgage and failing to pay may have severe consequences. Talk to us at Homebase Mortgages if you have some questions or want to get a second mortgage in Canada.

Get a Second Mortgage When You Have Bad Credit

Do you know that you can significantly improve your credit score by getting a second mortgage when you have bad credit? If used correctly, a second mortgage can be used to repair bad credit although the challenge lies in qualifying for one when your credit score is bad. If your application is strong enough and you’re able to get a good interest rate, then you’ll definitely be able to repair your credit score.

Effects of Bad Credit

Using a second mortgage to fix a bad credit come with a lot of possible pitfalls. You have to note that a second mortgage is still a loan and that it comes with a higher interest rate than your primary mortgage because a second mortgage carries a higher risk for the lender. This means that the lender for the second mortgage will only get paid after the lender of the primary mortgage in case you default on your payments; and hence, second mortgage lenders charge higher interest rates especially for people with bad credit. Bad credit may also mean that stricter terms will be drafted for your second mortgage.

The First Step to Repair Bad Credit

Before you can use a second mortgage to repair your bad credit, you have to qualify for a second mortgage first by improving your credit score even by just a little. You can achieve this by getting a copy of your credit report and looking for mistakes that can be reported to quickly improve your credit score.

Pay Some of Your Debts

Paying off some of your small debts or working to get some of your credit card debts below 30% of your credit card limit can drastically improve your credit score and help you get approval for a second mortgage. Do not be tempted to move your debt to a lower interest card because that is only a band-aid solution that can hinder your possibility to get approval for a second mortgage. Remember that multiple rejected applications can also damage your credit score.

Get a Second Mortgage to Fix Bad Credit

After you’ve done the above, it is still possible to have some trouble getting approved for a second mortgage if you have bad credit. One way to get approval is to have someone as co-signer, perhaps a family member who has a good credit score. It will also help to seek the assistance of professional mortgage brokers who can connect you with lenders who may be more understanding of your situation. A good mortgage professional will not only help you shop for a lender but will also make sure to protect your interests so that you’ll be in a better financial position while paying your second mortgage and even more so after. By paying off a second mortgage, you can fully fix your bad credit. The trick lies in borrowing only what you can afford with the help of trusted mortgage professionals and staying on top of your payments.

Need to assistance connecting to lenders who will lend you a second mortgage despite of your bad credit? Contact us today and we’ll talk about further details with you!

What Canadians Should Know About Second Mortgages

Second mortgages are becoming increasingly popular, but do you know why so? What makes second mortgages attractive for many Canadians and why it is worth a consideration for you? Find out about these and more below!

Second Mortgages are Usually Used for Debt Consolidation and Home Renovation

Most people who get a second mortgage do so because they want to pay off a high-interest debt or because they need funds to finance a home renovation project. Both of these are smart uses for a second mortgage because debt consolidation saves you money on interest and home improvement projects usually increase the value of your home, thereby also increasing your equity.

Your Second Mortgage Can Help With Your Bad Credit

Consolidating your debt with a second mortgage can reverse your bad credit and repair it back to its former spotless glory. It may be a bit challenging to do this by borrowing from a bank so you better try alternative lenders such as private lenders that will have friendlier requirements.

There are Several Types of Second Mortgages

Second mortgages are loan products that come after a primary mortgage. As such, they come in various forms to cater to different people’s needs. For example, HELOCs are typically best for people who need a small amount of cash on a regular basis and happen to have a strong credit profile. Home equity loans, on the other hand, are given as a lump sum.

Second Mortgages are High-Risk Loans for the Unaware

Second mortgages use your home as a collateral so failing to pay based on the terms may result in you losing your home to foreclosure.

You Can Borrow as Little as You Need or as High as Your Equity Will Allow

Because the amount you can borrow on a second mortgage is usually dependent on the home equity you have, the amount you can access can be as much as a few hundreds of thousands of dollars. If you need a small amount fairly often, you can get a HELOC because that type of second mortgage works as a revolving credit with no minimum requirement for the money you borrow each time.

Interest Rates Vary Widely

Because different types of second mortgages have different terms and requirements, their interest rates also vary widely. This means that you have to consider this before getting a second mortgage to ensure that you choose the type that best fits your financial needs and means.

Second Mortgages Have Fees

Just like the interest rates for second mortgages, the fees vary as well depending on the lender, your location, and the specific type of second mortgage you apply for. This is where it gets tricky because you want to make sure that the savings you’ll get will exceed the fees you’ll have to pay. A mortgage professional can help you with this by advising you on what type of second mortgage may be best for you.

Second Mortgages Have Flexible Payment Terms

Some types of second mortgages only require you to pay interest on a set schedule, resulting in lower monthly payments that are easier to manage. This is great for those who want to use a second mortgage for home renovations before selling a home because they can use the second mortgage to increase the home’s selling value and then use the sales profit to repay the second mortgage.

Do you have questions about getting a second mortgage? We’d be glad to talk to you about them! Contact us at Homebase Mortgages so we can discuss with you the different types of second mortgages and help you determine which might be best for you.

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Convert Your Mortgage Into Assets

Most people think of their mortgage as just another bill to pay, not really seeing it as an investment. This mindset has got to change because far from a money pit, a properly handled mortgage is like building up a savings fund for a rainy day.

A mortgage is an investment because the more you pay towards your mortgage, the more home equity you’ll have. Home equity can be tapped and turned into cash via a second mortgage or a home equity line of credit – giving you a way to use the equity you’ve built up in your home without resorting to selling your home. Below are the ways on how you can convert your mortgage and your home equity into usable cash.

Apply for a Second Mortgage

Applying for a second mortgage will allow you to access as much as 80% of your home equity. This is released as a lump sum that you can use to pay for huge one-off expenses such as for debt consolidation and paying for renovation, both smart uses for your home equity as both can improve your finances by a large margin if done right.

Applying for a home equity loan or a second mortgage may or may not be an issue for you depending on your credit score and existing equity. Most banks decline people with no stable source of income or those whose credit score don’t meet up to bank standards. Private mortgage lenders are generally more lenient and can draw up more manageable terms especially with the help of private mortgage brokers.

Remember that a second mortgage means another loan that will have to be paid on top of the primary mortgage. It is best to have professional help regarding the terms to make sure that you won’t have issues paying off 2 mortgages at the same time.

Get a HELOC or a Home Equity Line of Credit

A HELOC allows you to access your home equity in the form of a revolving credit. This means that there will be a predetermined ceiling amount from which you can borrow and re-borrow up to a certain time frame.

A HELOC can help you tap up to 65% of your home equity and is a great financial solution for large recurring expenses such as financing university tuition or medical treatments.

Refinance Your Mortgage

A mortgage refinance is a means to give your current mortgage contract an overhaul to make it more manageable for you and possibly get some savings in the process. Just like the 2 ways to convert your mortgage into assets that were mentioned above, a mortgage refinance doesn’t come free. There are fees involved which you have to consider to determine if paying for the fees will still give you a substantial enough savings to justify going through the process.

If you’re not sure which amongst a mortgage refinance, a HELOC, or a second mortgage is the right way for you to convert your mortgage into an asset, a consult with mortgage professionals will be the next best step. Contact us today so we can help you get answers!

 

 

Your Guide To Getting A Second Mortgage By Building Home Equity

One of the fastest and most doable ways to build wealth is to build home equity. The value that you build in your home is one of your biggest assets that you can tap in times of need or when you need funding for a large project such as a home renovation.

Building home equity is literally as easy as paying your mortgage. Over time, the money that you pay towards your home grows as part of your home equity, which is defined as the value that you own when you take your home’s market value minus the amount that you still owe. The bigger your home equity, the easier it will be to tap later on when needed. This is one of the biggest tricks in making sure that you get a second mortgage should you need it. You can build your home equity by using the tips below:

Pay A Sizable Downpayment

Paying the largest downpayment that you can afford means starting off your home ownership by owning a large portion of your home from the start. This also means that the sooner you can apply for a second mortgage should the need arise.

Pay As Much As You Can Every Month

Your mortgage is paid monthly with a set amount; however, there is no stipulation against paying more than the minimum required per month so paying a bit extra here and there will not help you fully own your home faster, it can improve your financial profile making other loans possible in the future.

Pick A Shorter Mortgage Term

Not many are aware of this but choosing a 15-year-plan over a 30-year-plan often means paying as little as a few hundred dollars more per month and saving hundreds of thousands of dollars down the road. Always ask to see various term computations so you can determine which one you can afford best.

Be Smart When Choosing Home Improvement Projects

Some home improvement projects boost the equity of your home better, thereby effectively increasing your home equity faster. For example, landscaping your lawn may cost the same as a kitchen floor makeover, but the kitchen floor makeover can bring up the value of your home as well as make it more attractive for buyers. It is all about choosing the wiser investment and going for the one with the bigger returns more so if your funds are limited.

Get a Second Mortgage Fast

Once you’ve been building your home equity for a while, you may choose to tap it by applying for  a second mortgage. A second mortgage can be used to help consolidate your credit card and personal loans so that they can be made easier to pay off and with a lower interest rate. If you’re not after a lump sum loan, you may try for a HELOC to tap your home equity. We’d be happy to explain to you which second mortgage is best for you. Contact us today!

 

Getting to Know Second Mortgage Loans

Thinking about getting a second mortgage loan can be overwhelming, more so when you don’t know where to start in order to apply for a second mortgage. Perhaps you’re wondering whether you’ll qualify or not, maybe you’re not sure whether applying for a second mortgage would be a smart decision for you, or maybe you want to save up and at the same time, find the best second mortgage provider for you. We aim to help and provide you with this information below!

What is a Second Mortgage?

A second mortgage is a type of loan that is backed by your home equity and that you take on top of your primary mortgage. A second mortgage allows you to tap your home equity via a lump sum without having to sell your home. It is important to note that payments for a primary and second mortgage are separate and both must be paid by the homeowner.

Generally speaking, a second mortgage has a higher interest rate than a first mortgage because lenders face more risks by financing second mortgages. In the event that the homeowner got into financial trouble, the primary mortgage is still likely to get paid and the second mortgage won’t be a priority, hence the interest rates are higher.

Getting a Second Mortgage

Second mortgages are also known as home equity loans. The term can also apply to a HELOC or home equity line of credit which you can better understand by reading our primer on getting a HELOC post. As for getting a second mortgage, it is usually given to homeowners with about 20% home equity and a certain credit score.

Banks and other big financial institutions are the major financiers of second mortgages; however, they have strict rules which make them unattractive for self-employed individuals and those who are trying to repair their credit score. Private lenders also finance second mortgages and they have friendlier terms for those who may not qualify for the terms set by banks. Private mortgage lenders typically work with mortgage brokers.

Uses for a Second Mortgage

A second mortgage can be used for debt consolidation or to pay for a huge expense such as a major home renovation. These are smart ways to use a second mortgage because debt consolidation saves you money on interest and funding a home renovation means increasing your home’s value and therefore increasing your home equity.

Qualifying for a Second Mortgage

In order to qualify for a second mortgage, the lender will look into your equity, your credit score, your ability to pay, and your property. A third party home inspector may be hired as well as a property assessment may have to be done. Your income will be scrutinized to check your ability to pay and your credit score will be perused to see the loans you have. Fees will be a part of this before you qualify and given access to funds via a second mortgage.

Need the help of mortgage brokers to apply for and get approved for a second mortgage? Professional mortgage brokers can do more than that! Talk to us to avoid second mortgage mistakes and get in touch with honest private mortgage lenders. Contact us today!

Save on Your Second Mortgage Rates by Shopping for the Right Lender the Smart Way!

Though getting a second mortgage is quite popular these days, rates can still vary by a lot depending on several factors including the lender you choose to transact with. Choosing the right lender is a big factor in managing how much you’ll end up paying for the interest of your second mortgage.

Why Mortgage Interests Differ

Mortgage interest rates are mostly dictated by individual lenders, but their decisions are still products of existing technology, motivation to be the market leader in their region, operating costs, and risks associated with each loan.

Some lenders take a more transparent approach and give you a ballpark of fees and interest as soon as you contact them. Some may not disclose these details until after a lot of communication has transpired. To make sure that you’re getting good rates, it won’t hurt to gather at least 3 quotes. Better if you have a mortgage broker who can get this data for you to maximize your savings. Just comparing 2 quotes can save you thousands in final fees and interest to be paid.

The key is to not just ask for the interest rate but also ask for the total that includes fees after all has been said and done. A 0.2% difference in interest can translate to thousands if applied for the same time period. Additionally, a higher interest rate applied for a shorter span of time can still result in savings for you. This is why it is important to compare data and think of long-term impact on your finances.

Is Getting A Second Mortgage A Smart Option?

A second mortgage is not the only way to tap your home equity although it certainly is one of the most popular for many reasons. For one, a second mortgage will give you access to a huge amount of cash all at once, making it the perfect option if you have a big-time expense that you can’t simply save for (like a home overhaul). A second mortgage is also easier to manage for some because the payments and interest are set per month, so the homeowner is aware of how much to pay and until when. This is different for a HELOC which has a variable interest.

Shop for the Right Lender

Ultimately, what will decide whether a second mortgage is the right financial solution for you are your current needs, your ability to pay, and whether you qualify or not. After this, the next step is to find the right lender by using the information we shared at the earlier part of this write-up.

Remember, getting a quote or several quotes from at least 2 lenders can save you thousands! More if you get the help of mortgage professionals who can save you both time and money. After all, they know which lenders would have the best possibility of having terms that would be the right fit for your needs.

Need help with anything concerning mortgages in Canada? We got the answers to your most frequently asked questions regarding mortgages and more. Contact us today to avail of our mortgage-related services.

Answers to Your Frequently Asked Questions on Second Mortgages

Getting a second mortgage is not something that you can simply do on a whim. You have to be sure that you understand what you are getting into and that you’ve at least read about the advantages and disadvantages of second mortgages before plunging in. Asking questions is only wise, after all! Below are the answers to the most frequently asked questions people have on second mortgages.

What is a Second Mortgage?

A second mortgage commonly goes by the term ‘home equity loan’. Essentially, it is another loan that you take on top of a property with an existing mortgage. A second mortgage loan is secured against the property it is associated with.

Is a Second Mortgage the Same as a HELOC?

A home equity line of credit is not the same as a second mortgage. The easiest way to explain their difference is that a second mortgage is given as a lump sum and is paid just like a typical mortgage. On the other hand, a HELOC operates more like a credit card because it is a revolving line of credit that can be used and reused until the set time and value limit is reached. Paying a HELOC is usually interest-only for predetermined time.

What is the Typical Interest Rate for a Second Mortgage?

Second mortgage interest can either be fixed or variable. What doesn’t change is the fact that interest for a second mortgage will always be higher than that of the primary mortgage because it carries more risks for the lender. The good thing is that compared to unsecured loans such as a car lease payment or a credit card, a second mortgage has a relatively low interest rate.

What is the Maximum Second Mortgage Credit Limit?

First off, there is a required amount of equity that you need to have before you can get a second mortgage (and this will vary depending on the terms of each lender). Banks usually require a minimum of 25% equity while trust companies may lend you money on just 10-15% home equity. The money that you can borrow can then be up to 80% of the appraised value of your home after the balance of your first mortgage was subtracted from it.

Is It Possible to Apply for A Second Mortgage if I Have Bad Credit?

While it is possible to obtain a second mortgage even if you have bad credit, the truth is that it will be a very long and probably unfruitful process if you approach the wrong lenders. This is because lenders can be very strict about approving second mortgages as they carry more risks for the lender.

For What Can A Second Mortgage Be Used For?

You can use the funds from a second mortgage to pay for any huge expense that you cannot simply save for given your financial situation. You can use it to pay for a home renovation to add value back to your home too.

What Risks Should I Be Aware of Before Getting A Second Mortgage?

Because a second mortgage is a secured loan against your home, you will risk losing your home if you fail to make payments or if you signed one with unreasonable terms. You have to be sure that you can afford the payments and that you fully understand the payment terms.

So, when is it wise to get a second mortgage? The answer is when you’re ready and fully understand the accompanying responsibilities as well as benefits to your finances. You may contact us if you have more questions on second mortgages not answered here. We’d be happy to talk with you at Homebase Mortgages!

When Is It Wise to Get a Second Mortgage?

Getting a second mortgage isn’t as simple as marching to a bank and telling lenders that you want to take a loan against your home equity. Although a second mortgage is just defined as a loan against the equity you’ve built up for your home, getting one is a complicated process that can result to you losing your home if you’re not careful. You should only take a second mortgage if you’re sure that you can handle the terms and that the risks will be worth it for you.

Why Get A Second Mortgage

Most people apply for a second mortgage to finance projects that they don’t have the cash for, such as an expensive home improvement project or extensive home repairs. Some do so to fund big expenses such as a dream wedding or vacation. There are also people who take a second mortgage to save money in the long run, such as when the money is used to consolidate loans with a high interest rate – effectively converting them to a low-interest single loan that is easier to handle.

How a Second Mortgage Can Help You

Whatever your reason is for trying to get a second mortgage, you need to understand how a second mortgage works to ensure that you end up helping yourself by getting it.

Know that a second mortgage gives you a one-time set amount that you have to pay on top of your first mortgage. The payments are a fixed amount monthly and is set until you’ve fully paid off your loan. The downside is that failure to make payments as agreed can lead to your losing your home to foreclosure.

How to Apply for a Second Mortgage

Getting a second mortgage follows a process that is similar to getting a first mortgage. There will likely be an appraisal as part of determining your home equity and then you connect with a lender or a bank to begin the paperwork.

Banks generally take a long time to evaluate your details to determine how much they can lend you. A private mortgage lender might be a better option if you’re not traditionally employed or if your credit score isn’t as good as banks requires it to be.

Is it Wise to Get A Second Mortgage?

Getting a second mortgage shouldn’t be your first financial option when you need cash. Ask yourself if it is possible to simply save up for the huge expense you have to fund. Try to see if your loans can be consolidated some other way. Try to see where you’ll be financially in the future to determine if you’ll be able to pay or whether you’ll be risking going homeless.

Weigh all the pros and cons before making up your mind to apply for a second mortgage. Try to find if there are any other ways to finance your needs. Once you’re sure you want to get one, don’t hesitate to ask for professional help to get the best terms possible. You need to make sure that getting a second mortgage will have a lot of benefits for your situation for it to be a truly wise  decision.

If you feel that you should consult with mortgage experts before you get a second mortgage, do it! Contact us and we’ll be happy to discuss your concerns with you.

Disadvantages and Advantages of Second Mortgages

Applying for a second mortgage is no light decision because it is a loan that can take your home away from you if not paid back according to the terms you’ve agreed to. On the other hand, it allows you to access your equity without having to sell your home. With this in mind, it follows that a careful evaluation of the disadvantages and advantages of second mortgages can help you gauge whether a second mortgage is for you or not.

Types of Second Mortgages

Second mortgages come in a lump sum and a line of credit form. A standard second mortgage gives you your loan in a lump sum that you’ll have to gradually pay over time with fixed monthly payments. A line of credit or a HELOC (home equity line of credit), gives you a pool of money from which you can withdraw from as needed and repay and reborrow from over and over.

Understanding the types of second mortgages will give you more flexibility about deciding which type of home loan will be better suited for your needs. Know that interest rate will usually differ – with a line of creed usually being subject to variable interest rate and a standard second mortgage having a fixed interest rate that helps you plan your payments ahead.

Advantages of Second Mortgages

One of the key advantages of second mortgages is that they allow you to have access to large amounts of cash given that the loan is secured by your home. Other benefits include:

  • Enjoy lower interest rate as compared to other types of loans because second mortgages are a type of secured loan.
  • Tax deduction for interest paid (more so for pre-2018) if you qualify barring technicalities. This is still available this year but only applies to money spent on getting substantial improvements on your home.

Disadvantages of Second Mortgages

The risk of foreclosure is the biggest in the list of disadvantages of second mortgages but this generally only applies if you fail to continue making payments. Other disadvantages of second mortgages include:

  • Second mortgages are not cheap. There are closing fees involved as well as you having to pay for appraisal, origination fees, and more.
  • Interest cost can add up. Although a second mortgage’s interest is a lot less compared to credit card loans and the like, it is still a bit higher than your primary mortgage’s interest.

Best Uses of Second Mortgages

There are many uses of second mortgages but the best and wisest one is perhaps reinvesting the money back in the home by means of needed home improvement projects and upgrades. Debt consolidation is another smart use for a second mortgage because of the money saved in the long run. Funding education is another good use for the funds from a second mortgage as further education can drastically improve your earning potential.

Now that you know how a second mortgage can help you, have you made up your mind to get a second mortgage? If so, feel free to contact us today!