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!