Some people are worried about getting a second mortgage in Canada because they have a lot of questions and are not sure of the answers. Although getting a second mortgage is now more popular than ever, it is understandable that some people may have misgivings about applying for one because of uncertainty regarding some details. Be sure to familiarize yourself with some important facts below to empower yourself when making a financial decision.
What Is A Second Mortgage?
A second mortgage has many forms. It encompasses home loan products that use the homeowner’s home equity as collateral. Examples include home equity loans and HELOCs. The homeowner can choose a second mortgage that would best fit their needs.
You Use Your Own Money with A Second Mortgage
A second mortgage is a home loan that allows you to tap into your home equity. Since your home equity is the value that you own in your home, it uses your money. Borrowing from your home equity means that your home may be on the line if you have issues with repayment.
Private Lenders Could Be Better Than Banks
It is often very challenging to qualify for a second mortgage from a bank. For those who have been turned down by banks in the past, applying for a second mortgage from a private lender may be easier as they have friendlier requirements and are more apt to review individual cases carefully.
Second Mortgages Are Often Used For Huge Expenses
The most common ways that homeowners use their second mortgage for are home renovation projects and debt consolidation. Compared to other loans, second mortgages have lower interest rates and can help a homeowner save thousands of dollars over time.
Second Mortgages Are Flexible
You can borrow as much or as little as you need with a second mortgage depending on the type of loan product that you apply for. A HELOC is a great choice for small but recurrent expenses and a home equity loan is a good option if you have a one-time big expense.
Interest-Only Payments Are A Thing
If you apply for a HELOC, then it is possible to pay for only the interest until the loan repayment schedule states that the loan should be paid. This is great for people who are currently struggling with cash flow but have incoming money in the future.
There are So Many Uses for A Second Mortgage
A second mortgage can be used for anything once approved. The funds from it can be used to set up a business, fund a home improvement project, pay for higher education, make a dream wedding happen, and so on. The homeowner can use the funds however way they see fit as long as they can pay within the terms of the loan.
There Are Fees and It Is Not Free
The fees for a second mortgage vary from lender to lender and on the type of second mortgage the homeowner is applying for. It is best to discuss these details with a mortgage professional to ensure full understanding of them.
Interest Rate Is Not the Same for Everything
Interest rates and terms vary based on the type of second mortgage and other important factors. Your mortgage professional should be able to discuss these with you as well as compare rates between lenders before you finalize your loan.
You Can Use a Second Mortgage to Repair Your Bad Credit
You can pay off your existing high-interest loan with a second mortgage. By doing so, you can enjoy lower interest as well as improve your credit score.