It is not only borrowers that are looking to take out various mortgage options in Ontario during the current Ontario real estate boom. As housing prices increase significantly and the investment value of property in Ontario is unquestioned, existing homeowners are also looking to profit from the robust housing market.

It requires discipline and fortitude to pay off a principal mortgage and all associated housing costs. An Ontario homeowner has worked hard to pay down their first mortgage. Why not make your first mortgage work for you and to your advantage? By assessing existing equity, there is a wide range of second mortgage loan options available to a homeowner that has equity established in their home.

Throughout the pandemic, contrary to predictions that were forecasting the opposite, housing prices have risen dramatically throughout the Province. Nowhere is that more evident than the Toronto and surrounding GTA housing market. The average house price may be out of reach for many as it now stands at 1.1 million dollars according to the Toronto July Housing Report.

Housing sales throughout the Province have also outstripped available housing inventory, creating a seller’s market throughout 2020 and continuing into the last half of 2021. As the pandemic has left many reluctant to put their house on the market, buyers are lining up to bid on the limited inventory. As a result, bidding wars have now become the norm.

How can current homeowners that wish to remain in their property benefit? Tapping into built-up home equity is the key to unlocking funds for immediate financial priorities. Unlocking home equity can form the basis of secondary mortgage options including the option of a bridge loan.

Second Mortgage Options for the Ontario Homeowner

Short-term financial needs will inevitably arise for any homeowner. Finding the funds to cover these unexpected costs can be found in taking out a second mortgage based on

  • The appraised value of your property
  • An assessment of the current condition of your home
  • The location of your property
  • The degree of the existing equity in your home (most lenders including private lenders will need to see at least $70,000 in existing equity in order to negotiate second mortgage options.

For the Ontario homeowner there are various second mortgage loan options available depending on the current financial objectives and particular financial picture of the homeowner/borrower:

Each of the second mortgage options will be calculated using the same criteria, however, the funds will be used for different purposes depending on the second mortgage loan a homeowner is applying for.

If a homeowner has poor credit, there are private lending options that exist throughout the Province to help homeowners reach their mortgage objectives. Private lenders (referred to as C lenders in the mortgage industry) are well established and experienced.

Mortgage Broker Store has access to private lenders through a broad network and will be able to point homeowners toward suitable private lending options. We will also be able to negotiate private second mortgage options directly if applicable.

What is a Bridge Loan?

Another second mortgage loan option is a bridge loan. A bridge loan is a mortgage loan that is negotiated to provide immediate financing until other long term financing becomes available.  What sets bridge loans apart from other second mortgage loans is the term length. Bridge loans are only provided for a very short term, typically 3-6 months.

A bridge loan requires a homeowner to borrow against the existing equity in their home or property and it is negotiated quickly with typically higher rates and fees as it is designed to serve as a financing bridge to help fill the short-term financial gap. To fully benefit from bridge financing, there should be sufficient equity in your current home.

In real estate, the main incentive for taking out a bridge loan relates to the immediate financial need to borrow funds to pay for the period between buying a property and closing on the current one.

What Are the Advantage of a Bridge Loan?

  • Taking out a bridge loan enables a homeowner to access equity quickly without selling their property first.
  • Taking out a bridge loan is a fairly quick way to obtain financing, usually with a private lender, it will only take a matter of days ( typically 3-5 days). Banks will take longer ( up to three weeks often)
  • Taking out a bridge loan using existing equity will provide the funds to offer a larger down payment to a seller which is advantageous in a competitive Toronto housing market.
  • 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.

Some of the Disadvantages

If there are disadvantages to the option of taking out a bridge loan it comes down to the potential costs involved. A homeowner may have to pay for a home appraisal, a bridge loan is slightly costlier than a home equity loan in terms of rates and fees, and there may be higher interest rates along with fees and transaction costs compared to long-term amortized mortgages.

Bridge mortgage rates with private lenders will tend to fall between 7% to 12% and any associated fees will usually represent between 3% and 6% of the total cost of the bridge loan.

Calculations Involved with Bridge Financing

Bridge loans will be calculated differently depending on if you are applying through a bank or through an established private lender. The banks will calculate the difference between the deposit you have to put down on a house and the bridge financing you are requesting.

A good example of how the banks calculate the amount of bridge financing is, if you are looking to access 180,000 to put down on a new house and have 30,000 in a deposit then the equation the banks would use would be 180,000 – 30,000 which equals 150,000. The bridge financing amount will be 150,000 at the interest rate of Prime plus usually 2 or 3% for typically a three-month term.

If credit is an issue a private lender will not rely on credit score and salary. A private lender will instead 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 more than 25% existing equity and will 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.) The corresponding mortgage rates will be higher the closer a homeowner gets to the Maximum LTV on their respective loan request.

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 will be able to 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.

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