Getting A Second Mortgage in Ontario? Read This!

Have you heard that more than 2 million Canadians have second mortgages? With this huge number of second mortgage holders, you probably expect that almost everyone is keenly aware of what a second mortgage is and how it works. That is not the case. If you’re from Ontario and want to get a second mortgage soon, read this to know more about what a second mortgage can and cannot do for you, how to apply for a second mortgage, as well as the common reasons why homeowners get second mortgages.

Understanding Second Mortgages

What is a second mortgage? A second mortgage is called that because it comes next in priority after a primary mortgage. Typically, a homeowner who has not yet fully paid off a primary mortgage needs to access the existing home equity and takes a loan for that, resulting in a second mortgage. With a second mortgage, the home equity serves as the collateral for the loan.

How Much Can You Borrow for A Second Mortgage?

The loanable amount for a second mortgage can go as high as 80% of the existing home equity. Home equity is the value of the home already paid off or owned by the homeowner. It can also be computed as the home’s current market value minus any loan or debt that is still tied up to the property. For example, if you have a property that is worth a million and you still have $250,000 to pay in your primary mortgage, then your home equity is $750,000. From this amount, you can access as much as $600,000 via a second mortgage. Of course, these numbers can change. These are just used to illustrate how tapping your home equity via a second mortgage can help if you have a huge expense that you have to address.

Why Do People Get a Second Mortgage?

Most homeowners apply for a second mortgage for sudden huge expenses that cannot be covered by savings and for which personal loans are not a smart option because of huge interest fees. Examples are the following:

  • Emergency medical expenses that are not covered by healthcare or insurance
  • Home improvement or home renovation
  • Tuition fee for higher education
  • Debt consolidation such as in the case of paying for several high-interest credit card debt
  • For use in an investment opportunity
  • To buy a car or pay for extensive car repair
  • Finance a wedding
  • To cover tax arrears
  • And more

Benefits of A Second Mortgage in Ontario

There are many possible benefits associated with getting a second mortgage in Ontario. Below are some of the most important ones:

  • Second mortgages have lower interest than other types of loans.
  • Second mortgages are easier to qualify for people who are self-employed or have bad credit. This is especially true with private lenders who have fewer restrictions than banks. Because they are secured by your property’s value, lenders can afford to be more lenient.
  • Second mortgages can be used to consolidate debt and improve credit score.
  • Second mortgages typically come with flexible payment schemes.

For the disadvantages of a second mortgage, they can vary with your specific situation. It is best to consult with a mortgage professional for guidance as well as assessment whether getting a second mortgage in Ontario is a smart decision for you. Contact us at Homebase Mortgages and we’d be happy to answer your questions as well as take care of your second mortgage application!

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Can You Get a Second Mortgage if You Have a HELOC?

An increasing number of homeowners currently has a HELOC so the question is, is it still possible to get a second mortgage if you already have an existing HELOC? The fact is, that may be a big challenge considering the recent changes for second mortgages implemented by Canada’s leading HELOC provider, Toronto-Dominion Bank. Whereas homeowners only needed to prove that they have considerable home equity before, now they have to prove that they will have no trouble paying another second mortgage on top of having a HELOC. More so, banks like the Royal Bank of Canada now require that homeowners meet a theoretical monthly limit and not just prove that they have a stable income source.

According to industry experts, the change above will have a huge impact on both second home and rental markets as well as everyone who wants to borrow money using their home equity.

Stress Test and Big Changes

With the new changes in place, getting a second mortgage or a new loan means that the borrower will have to undergo a stress test. This is a test that will set what credit limit may work for you considering you have a HELOC. The lender will account for an assumed payment (which is based on government benchmark) when processing your application and use that to determine your capacity to pay for the loan you’re applying for. This is something to consider if you’re applying for a second mortgage, a HELOC, or any other type of home equity loan for 2019. Just to be clear, those who are planning to renew their mortgage won’t be affected, only those who have a HELOC and plans to get a second mortgage too will be subject to this.

How Things Are

Numbers are the best indicators as to how things will be. With this change, someone who has $200,000 HELOC has to prove that he or she is able to pay $1,202 per month, leaving little room for those who are planning to get a second mortgage from banks and are not in a very good financial position at the moment. The silver lining in this development is that private lenders generally do not have to follow this new policy and thus, will be easier to borrow from.

Stacked Odds?

Some industry insiders say that this is a sign of bank hypocrisy. After all, they usually offer and approve HELOCs for their clients without even needing an application. It seems that the same HELOC that the banks persuade their clients to get is now a financial limitation unless someone is really well to do. Considering that banks often push for the maximum allowable HELOC limit for borrowers, the practice may well be called a trap these days for what it does to borrowers who are now burdened with a loan that they don’t need.

Overall, things are looking up if you’ll apply for a second mortgage from private mortgage lenders instead of banks. Contact us and our mortgage professionals will be happy to walk you through the details of what borrowing option might be best for you if you have an existing HELOC.

 

Is It Easy to Get a Second Mortgage?

Perhaps you’re wondering whether now is the right time to get a second mortgage. After all, getting a second mortgage is quite common these days and it doesn’t seem to be a very complicated process. Is it indeed true that it is easy to get a second mortgage?

Second Mortgage Requirements

Just like any other type of loans, a second mortgage is a home loan that comes with its own set of requirements that can vary from one lender to another. For example, applying for a personal loan will typically have high consideration for source of income and ability to pay whereas, for a second mortgage, the primary focus is the value of the collateral for the loan. Second mortgage providers then have their minimum required home equity before anyone can apply for a second mortgage. Generally speaking, second mortgage providers are more concerned about the value of the collateral for the loan because that is what they can have in the event of a default or nonpayment (because a second mortgage is a secured loan). In contrast, providers of unsecured loans like credit card loans and some personal loans are more concerned about a borrower’s credit score and source of income because they face a higher risk of not getting paid back.

Why Apply for a Second Mortgage?

People apply for a second mortgage for a variety of reasons. The most common are for:

  • Debt consolidation
  • Paying for a big expense such as medical costs or tuition for school
  • Funding for an investment
  • Paying for home repair or home renovation

If you need a large sum of money and want to tap into your home equity without selling your home, one way that you can do that is to apply for a second mortgage.

Is a Second Mortgage Expensive?

Just like other loans, a second mortgage comes with fees and interest. You can expect to pay about 5-15% of your loan in fees and interest. That may seem like a lot at first glance but note that other loans charge as much as 30-40% on interest alone. Lenders need to charge interest at above the prime rate because second mortgages come only second in priority compared to a primary mortgage. It carries more risk for the lender and lenders have to account for that by paying for insurance and taking measures to protect themselves.

How to Pay for A Second Mortgage

Second mortgages typical follow an interest-only payment scheme for a set period. After that period, the loan can be reevaluated if a renewal is desired. If the borrower does not want to renew, then he or she simply has to follow the payment terms that were laid out when the second mortgage got approved. This is usually a 1-year term with details discussed with the borrower before funds were released.

Are you worried about the challenges you might encounter should you decide to apply for a second mortgage? We can help. Contact us and we’ll be happy to discuss with you the basics of a second mortgage as well as other home equity loans in Canada plus how they might be able to help you.

 

Is Now the Right Time for You to Get a Second Mortgage?

Getting a second mortgage is not a decision to trifle with. After all, you need to use your home equity as collateral for you to get approved for a second mortgage. With this in mind, how do you know when it is time for you to get a second mortgage? What are sound reasons to apply for one and how to gauge if you will truly benefit from it versus if its something that is just nice to have?

So, What is a Second Mortgage?

A second mortgage is a type of mortgage that you can apply for once you already have a primary mortgage. It is backed by the value you’ve built in your property – which is why a second mortgage usually allows you to tap to up to 85% of your home equity.

We’ve compiled several reasons why getting a second mortgage may be beneficial for you right now. Use the following reasons to assess whether it is the right time for you to get a second mortgage or not.

You Want to Buy an Investment Property

It is one thing to simply want to buy houses for the sake of buying houses versus buying one to help make more money for you. If you want to buy an investment property but do not have enough cash to pay for the huge downpayment, getting a second mortgage may be the right decision for you provided that your cash flow can cover the rest.

You Want to Consolidate Debt with Home Equity

Consolidating debt saves a lot of money. When you consolidate debt, you end up with a single lower-interest debt versus having to pay several high-interest debts. Saving money this way can amount to a couple of thousands saved on a monthly basis. If the savings are going to be worth the effort of consolidating debt, then it is certainly justified for you to get a second mortgage.

You Need Funds to Pay for School

Are you planning to go back to school to improve your earning potential or want to fund a loved one’s higher education? Investing in education is one of the best reasons to get a second mortgage because you will surely earn back whatever money you invested in it. It may take a while to start seeing returns but it is worth waiting for if you want a brighter future for you and your family.

You Need Funds to Invest in a Business

You can’t make money without having money. If you want to start a business or expand one, you will certainly need a huge sum to do so. You can use the funds from a second mortgage to beef up your existing business or to start a new venture. This is a huge gamble but if you’re responsible enough to watch where the money goes and determined to get it back, then perhaps it is time for you to get a second mortgage.

You Want to Renovate Your Home

It is quite expensive to renovate a home but then, renovated homes tend to increase their value. You can use a second mortgage to finance a home renovation and then use the increase in home value to pay for the second mortgage at a future date. This is a good move if you’re planning to renovate your home for reselling.

Are you ready to apply for a second mortgage? Use our detailed application form or contact us so we can assist you as soon as possible.

 

The Basics of a Second Mortgage – Lenders and How to Qualify

Getting a second mortgage can be either challenging or easy depending on how informed you are. By definition, an additional loan that you take on a property that is already mortgaged is a second mortgage. This makes a second mortgage riskier for lenders as compared to a first mortgage. In the event of a default, the second mortgage lender knows that they are only second in position on who gets paid first. The lender also risks not getting fully paid or paid at all. For this reason, it is understandable that the interest rates for second mortgages will always come out higher than that of primary mortgages.

Types of Second Mortgages, What is Best for You?

Depending on your ability to pay, existing loans, income, and other factors, one form of second mortgage may fit you more than another. For instance, if you have more than 20% equity in your home and happens to have good credit, a HELOC or a home equity line of credit may make the most sense for you. If you’re someone with little equity on your property, then it might make more sense to try to get a second mortgage from a private lender because they are usually more lenient in their requirements as compared to say, banks. If you’re not sure which type of second mortgage to apply for, then call us so we can guide you on which one might work for you.

Uses for a Second Mortgage

The uses for a second mortgage are endless. The most common uses include debt consolidation, paying for home renovation or home improvement, and using the money for investments such as higher education or another property. Some people may think that using a second mortgage for these may not be a smart decision because of interest rates. However, note that interest for second mortgages are still significantly lower than credit cards and other types of loans more so if you have a good credit score.

What You Need to Qualify for a Second Mortgage

Lenders typically look into 4 main qualifiers to approve someone’s application for a second mortgage.

  • The first factor is how much equity the homeowner has. The larger it is, the easier it is to get approved. Regular and up to date payments to utilities is under this qualifier as well.
  • The second factor is income. Verifiable income is always good to have because this serves as a guarantee that you have the ability to pay.
  • The third factor is credit score. Higher credit score means easier approval as well as lower interest rates because it generally means that you’re good at paying debt.
  • The fourth factor is the property itself. A lender views any granted loan as an investment. A run-down property may mean money lost in the future so a well-maintained property in a good location will have better chances of approval when getting a second mortgage.

Overall, applying for and qualifying for a second mortgage is a straightforward process. If you’re interested to apply for a second mortgage, contact us as soon as possible so we can help you out.

Important Things You Need to Know About HELOCs and Second Mortgages

Home equity loans and home equity lines of credit are hot mortgage news topics recently because of changes with mortgage rules and interest rates. There is also quite a lot of misunderstanding from readers thinking that HELOCs and home equity loans are one and the same. In this write-up, we’ll be delving more into HELOCs and differentiate them from second mortgages.

A HELOC or A Second Mortgage is a Line of Credit That is Secured by the Value of Your Home Equity

Second mortgages and HELOCs are both loans that use the equity of your home as collateral; however, while a second mortgage is dispensed as a lump sum, a HELOC is given as a loan limit from which the borrower can use as little or as much of for a predetermined period of time. Because of this, the required monthly payment for HELOCs may differ from month to month unlike with second mortgage with which the required payments are oftentimes fixed rate.

You Can Lose Your Property if You Miss Payments

Because second mortgages and HELOCs are home equity loans, inability to pay your debt can mean losing your home according to the terms you agreed with. A lot of people can forget this crucial detail so be sure that you fully understand the loan terms you’ll sign for. Remember that a secured loan means that if you leave it unpaid, the lender can take the security.

Second Mortgages and HELOCs Are Not Without Pitfalls

Home prices are rising up and this equated with a lot of people becoming rich on paper because their home equity has gone up faster than anticipated. However, just because you can tap into your home equity does not mean that you should max it out. It is still best to borrow an amount that you’re sure you can pay to avoid repayment issues later. Note that the bigger the debt, the bigger the interest rate is as well.

Home Renovations Remain a Favorite

Do you know that HELOCs were originally meant to help homeowners finance home renovations that can, in turn, increase the value of their property? Though an increasing number of borrowers use HELOCs for something else, a lot still consider getting a HELOC to fund home renovations. The same goes for second mortgages, more so if the planed home renovation is meant to be an extensive one.

Second Mortgages and HELOCs Also Require Financial Planning

Even though you are doing okay now in terms of cash flow, things can change drastically in a matter of months. With this said, it is important to know possible changes in the interest and payments that the lender may initiate before you even sign for your home equity loan. Understand that although second mortgages and HELOCs are easier to apply for, especially if borrowing from private lenders, they are still loans and have to be paid on time according to the terms you agreed with.

Are you worried that you may not be able to handle getting a second mortgage or getting a HELOC? Contact us today and we’ll discuss with you what home equity loan option may be best for your unique circumstances.

 

 

Do Not Get A Second Mortgage Without Reading This

Just thinking about getting a second mortgage can be very intimidating. Maybe you’re unsure about whether getting a second mortgage can really help you. Understanding what it is and what it can do for you should allay your worries and make for a smoother application process. That’s why we wrote this article!

Second Mortgage Definition

A second mortgage is defined as a type of loan that is secured against the value of your home, just like your primary mortgage. However, it is called a second mortgage because it only gets second priority with your initial mortgage getting top priority. Homeowners can borrow as much as 90% of their home equity with a second mortgage.

Why Get a Second Mortgage?

If you’re contemplating applying for a second mortgage, the most likely reasons are to finance education or spend for a home renovation. If not these, perhaps you are in the middle of your mortgage term and want to avoid fees related to refinancing or breaking your current mortgage. Or, you’re thinking of using your home equity for debt consolidation.

Given the above common reasons on why people apply for a second mortgage, it is easy to see why getting a second mortgage is gaining popularity.

Risks of a Second Mortgage

Second mortgages carry risks just like any other type of home loan. Lenders also view second mortgages as a riskier type of loan for them because money is lent to a borrower who already has an existing home loan. This is why more and more people are getting their second mortgage from private mortgage lenders because banks tend to be very strict to mitigate possible risks.

Interest rates are higher for second mortgages because lenders need to cover their own risks as well as insurance for lending to borrowers who have a higher risk of defaulting. The same goes for fees and penalties which is why reading the fine print and making sure that you understand all the terms is of utmost importance before signing a second mortgage.

Is It Worth it to Get a Second Mortgage?

Second mortgages spell convenience although some may view them as a bit expensive. Homeowners who have a lot of home equity can usually negotiate for better terms. If the funds are used in a smart way, such as for debt consolidation, you can save a lot of money after all the fees are considered.

The people who benefit the most from getting a second mortgage are those with a plan to pay it off as soon as possible and only using it for temporary financial relief. Note that the benefits you can gain from applying for a second mortgage are dependent on the terms that you can get, especially with the help of mortgage professionals.

Are you looking for insightful information on getting a second mortgage and understanding what it can do for you? Contact us and we’ll be happy to talk! Our team of mortgage professionals will discuss with you what you need to know to ensure that you’re getting the best mortgage help possible.

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7 Things You Need to Know to Get a Second Mortgage in 2019

Getting a second mortgage remains as one of the best financial solutions for homeowners who are at a financial bind and need funds. Not everyone has a stash of savings in their bank and when a huge expense comes by, it is comforting to know that you can use your home equity to gain access to some money.

What is a Second Mortgage?

A second mortgage is an additional loan that you take on your house when you still have a primary mortgage to take care of. It is taken with another mortgage lender and is paid separately from the primary mortgage. Know that a second mortgage does not erase or cancel out a primary mortgage; rather, it is a separate loan.

How Does It Work?

A second mortgage allows you access to funds from your home equity. This is because this type of mortgage loan uses your home equity as collateral. This type of mortgage loan is riskier for the lender and can be risky for the borrower too if the borrower fails to pay.

How Does One Qualify for a Second Mortgage?

Lenders for second mortgages tend to look more at a person’s home equity value than that person’s credit score or income. It is important to know what percentage or value you have in your home equity before applying for this type of mortgage loan.

How to Pay for a Second Mortgage?

Most lenders have terms that last a year or two wherein they only require the borrower to meet the interest-only payment. After this period, the borrower is required to pay the full amount. If the borrower cannot do so, there is an option to get a new second mortgage or extend the loan for another term.

Is it Possible to Get a Second Mortgage Even with Bad Credit?

The short answer is yes. Many lenders will have no issues with providing second mortgages to people with bad credit including those who got turned down elsewhere or who have filed for bankruptcy. The tricky part is finding these understanding private lenders and connecting with them so that you can apply for a second mortgage.

Why Are Second Mortgage Interest Rates Higher Than Primary Mortgages?

The primary reason for this is because this type of mortgage loan carries more risks for the lenders. They risk losing their money if the borrower is unable to pay because the first priority for payment goes to the primary mortgage lender.

Is it Easy to Apply for a Second Mortgage in 2019?

Applying for this type of mortgage loan follows a set procedure wherever you may be in Canada. There are no shortcuts. You need to provide the required information and show that you have enough home equity to qualify. Aside from this, you need to find the right lender that will be understanding of your situation.

Do you have bad credit and need a second mortgage or were your second mortgage application turned down by banks? Contact us at Homebase Mortgages and we’ll help you get approved as well as inform you about the various ways to use home equity to borrow money!

 

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Got a HELOC? You Might Have Trouble Getting a Second Mortgage

A new rule change may make it a lot tougher for those who have a HELOC in Canada to get a second mortgage. Just recently, Toronto-Dominion Bank, the leading HELOC provider in Canada, just changed their policy and are now requiring those who have applications for other financing methods to prove that they are capable of paying their HELOC based on reaching the theoretical monthly limit and not on how much the actual balance is. This new policy is currently being implemented by some lenders, including the Royal Bank of Canada.

Small Change, Big Changes

As of present time, OSFI, or the Office of the Superintendent of Financial Institutions has not yet directly claimed responsibility for the recent changes although they are Canada’s banking regulator. Industry experts are saying that this change will have a significant impact on the second home and rental markets, not causing a crash of the market but will surely add extra weight on home prices.

What This Means

If you’re thinking of getting a HELOC or new loan in the future, you should be ready for the banks subjecting you on a stress test, testing you on a HELOC credit limit that you can afford. They’ll add an assumed payment to your mortgage application which will be based on the government’s benchmark

If you are getting a new HELOC, all the banks will “stress test” you on the HELOC credit limit. In other words, they’ll add an assumed payment to your mortgage application, based on the greater of the lender’s contract rate or the government’s benchmark posted rate. No impact will be felt if you’re merely renewing mortgage as well. Only those who have an existing HELOC and getting an additional mortgage will feel the hit.

Huge Impact?

With the new policy, a borrower who has a HELOC of $200,000 will have to prove that he or she can pay a monthly HELOC payment of $1,202 based on current rates. This can cause individual debt ratio to skyrocket beyond lenders’ maximum limits.

The good news today is only a few lenders have applied the policy so far although some more major banks will surely implement the change come 2019.

Bank Hypocrisy?

The banking industry makes a lot of money from HELOCs. It is said that borrowers do not apply for a HELOC, they are typically sold a HELOC if they are deemed credit-worthy. HELOCs undoubtedly increase bank profits and banks often build fences around borrowers when it is time for renewal, making borrowers pay more if they want to switch lenders. Banks also try to approve those with a HELOC application for the maximum amount, because the more borrowers use, the more interest they can charge. Some industry insiders now deem the actions quite shady since the usual marketing spiel is that HELOCs don’t have a huge impact on borrowers and now the borrowers are kind of trapped because of new developments.

If you want to retain your HELOC and qualify for a second mortgage to buy another property or to finance a home renovation, know that the recent changes may have an effect on you but some lenders may be easier to talk to than banks. Contact us and we’ll help you get a second mortgage.

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.