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.