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.