Throughout an unprecedented pandemic, the Ontario housing market has managed to not only weather the storm but also experience a steep upswing. Property appreciation throughout the Province, highlighted most significantly in the Toronto and surrounding GTA has been startling. As we close out the second quarter of 2021, the real estate market in Ontario is outperforming all expectations.
The Toronto Housing Report recently published the July 2021 real estate statistics. Housing numbers continue to impress. The average price of a single detached property in the Toronto area has risen to 1.1 million.
Houses are selling very quickly with an average of only 14 days on the market. These numbers are very encouraging for existing Toronto homeowners serving as further incentive to look carefully into the various second mortgage options that are available.
When contemplating a second mortgage on your property there is reason to be optimistic. There are many advantages to exploring the option of accessing existing equity in your home for various short-term financial goals.
As you have been working to progressively pay down the principal on your first mortgage, equity has been steadily building in your property. This equity can be utilized for different short-term financial goals otherwise not possible with other monthly payments to be made.
Life has a way of throwing financial hiccups into our plans. These financial priorities can force a homeowner to evaluate financial priorities. This may be the time to look at second mortgage options utilizing the equity built up in your property.
Bridging the Financial Gap- Bridge loans can be the answer
Secondary mortgage financing is a great option for homeowners. Equity can represent the answer to solving short-term financing objectives and there are a host of second mortgage options open to an interested Ontario homeowner.
- Debt consolidation loans– Using existing equity, a debt consolidation loan can provide the funds necessary for any pressing renovation and updates to your property. By renovating and upgrading your property you will be increasing the value when it comes to resale.
- Home equity loans– By tapping into existing equity financial concerns can be addressed such as paying off outstanding debt payments, education expenses, or helping pay your first mortgage payments reliably.
- Home Equity Line of Credit (HELOC) Acting like a revolving line of credit enabling funds to be available as the balance is paid off, a homeowner only needs to pay the monthly interest on the line of credit.
- Home Renovation loans– If you have multiple debt payments, a debt consolidation loan can help merge these payments into one manageable monthly payment. This will enable all associated housing costs to be covered more comfortably.
- Refinancing a principal mortgage– A second mortgage loan can provide necessary funds using existing equity to help ease the terms of your primary mortgage.
There is another second mortgage option that may provide a viable financial solution. A bridge loan represents a short-term loan (usually 3-to-6-month terms.) A homeowner borrows against the existing equity in their home or property. The motivation to take out a bridge loan usually originates from the need to access considerable equity to purchase new property. Once the new property is secured then these funds will be paid in full from the sale of the primary home.
Bridge financing can also be used for other reasons. A homeowner may utilize bridge financing for other household debts or may put the funds towards pressing home renovations.
A bridge loan can serve as a financing bridge between the sale of your current property and closing on a new purchase but can provide a solution for short-term financial objectives as well. To fully benefit from bridge financing, there should be sufficient equity in your current home.
The Benefits of a Bridge Loan
If a homeowner wishes to take out a bridge loan to help bridge the gap between the sale of their home and closing on a new residence, then this type of financing provides some real advantages. Bridge financing is also advantageous for those homeowners that need funds immediately to pay for various financial objectives.
Poor credit will always stand in the way of being approved for bank mortgage financing regardless of the type of financing requested. A private bridge loan can be negotiated with those that have credit issues.
- A bridge loan is a fairly quick way to obtain financing (as quickly as 3-5 days)
- A bridge loan will avoid the issue of having to move twice.
- A bridge loan enables a homeowner to access equity quickly without selling their property.
- A bridge loan using existing equity will provide the funds to offer a larger down payment when selling and buying a new home
- Obtaining a bridge loan through a private lender will be achievable even with poor credit if the banks have turned down a homeowner.
- Private lenders will be able to offer bridge loans to homeowners who may need immediate funds to pay off existing debts.
What will it cost? As in anything in life, nothing is for free. This rule applies aptly to bridge loan approval and the associated costs. Fees will be higher for both banks and private lenders when it comes to bridging financing. A private lender will typically charge 7 to 12% interest on a bridge loan and any other second mortgage loan option. The fees associated with all privately secured mortgage financing tend to be between 3% and 6% of the total cost of the loan.
How Do Private Lenders Calculate Bridge Financing?
When credit is an issue, bridge financing through a private lender can be the preferred second mortgage route. A homeowner will be able to use these privately negotiated bridge loans including:
- Paying off immediate debts,
- Paying off arrears if a first mortgage has fallen into default, and
- Paying for any possible renovations or consolidation of multiple monthly liabilities.
Contrary to the banks who will be lending out bridge financing to help homeowners buy a new property, private lenders will be viewing bridge financing as a method for a homeowner with poor credit or non-traditional income to access equity quickly for short-term financing needs.
A private lender will calculate the Loan-to-Value (LTV) on your home and assess the degree of equity you may have. Generally, a private lender will need to see at least 25% existing equity and can loan out to 75% LTV (which represents 75% of the appraised value of your home). The loan will be short-term, similar to the banks (3 months to a year depending on the needs of the homeowner.)
Mortgage Broker Store Can Negotiate Different Types of Second Mortgage Loan Options
With access to a broad network of well-established and experienced private lenders across Ontario, Mortgage Broker Store can connect an interested homeowner to private lenders to discuss various private second mortgage loan options, including possible bridge financing. We will also be able to negotiate private financing directly, depending on your specific financial objectives. Poor credit and non-traditional income need not be a barrier to obtaining a bridge loan or any other loan to help pay off any pressing monthly liabilities. Don’t hesitate to contact us at your convenience to discuss the best options to suit your unique financial circumstances.