A second mortgage allows you to borrow against the asset that you have built in your home. If you own a home and have been paying your mortgage, you are building home equity that can be accessed with the help of a second mortgage. This will help you use your asset for your projects without having to sell your home.
What is the Meaning of a Second Mortgage?
With a second mortgage, a homeowner is able to get a home loan using the existing home equity as the collateral. This loan is called a second mortgage because it is a mortgage loan on top of the homeowner’s primary mortgage. As such, a second mortgage also receives secondary priority for repayment if the home goes into foreclosure. The primary mortgage gets first priority. In the event that the homeowner is no longer able to pay debts and the home is sold by the lender, the primary mortgage gets paid first and only the remaining funds go into the payment of the second mortgage. This is the reason why most lenders for second mortgages have strict requirements before a homeowner can qualify to apply for a second mortgage.
How Does a Second Mortgage Work?
Second mortgages tap into the home equity of a property. The higher the home equity, the higher the chances that the homeowner can be approved for a second mortgage because it means that the homeowner has been diligent in paying towards the equity. You can estimate your home equity by subtracting any amount still owed in your primary mortgage from the estimated current market value of your property. As long as you are making payments towards your mortgage, your home equity will increase except in the case of when property values suddenly drop in your area.
After determining if you qualify for a second mortgage, you can submit an application to the lender of your choice with or without the help of a mortgage professional. This is a tricky process that can result in expensive mistakes. It is advisable to consult with mortgage professionals to save time, effort, and money.
There are many different types of second mortgage and they are divided into two forms. You can either access your home equity as a lump sum or as a line of credit. If you choose a line of credit, you will have a pool of money to borrow gradually from. There is no required minimum amount to use at any given time as long as you do not exceed the ceiling amount of your line of credit. If you choose a lump sum, the approved loan’s amount will be available for you to use however you want. You will be charged fixed monthly payments to help you pay your loan gradually over time.
Getting a Second Mortgage
Once you are decided to get a second mortgage, shop around and look up a minimum of three lenders. Get quotes either on your own or with the help of a mortgage professional to better gauge which lender and type of second mortgage is the best fit for your needs. If you need help getting a second mortgage in Canada, contact us at Homebase Mortgages.