The ability for homeowners to tap into the equity in their homes can provide financial flexibility. Financial needs arise constantly, and economic circumstances are always fluid. Having the freedom to use money built up in your property without taking on a separate debt obligation is one of the many advantages of being a homeowner and working diligently to pay off the mortgage on your home.
The more principals you pay down, the more equity you can access. One such decision to be made when utilizing existing equity is whether to take out a second mortgage. With different mortgage loans available to an existing Toronto homeowner, it may seem overwhelming and challenging to determine which type of second mortgage would suit a Toronto homeowner’s financial objectives.
If paying off high-interest debt and accessing funds for financial obligations is a priority, consider home equity loans in Toronto.
This may also be the time to take the steps necessary to secure second mortgage financing. Toronto and GTA see impressive housing appreciation, offering homeowners opportunities to capitalize on newfound property gains.
Different Types of Second Mortgage Loan Options
If you have an existing first mortgage, consider any additional loan using your home as leverage as a second mortgage. When looking at the type of second mortgage loan options open to a Toronto homeowner, the list can include:
- Home Equity Line of Credit (HELOC)– A HELOC is structured as a revolving line of credit using the equity in your home. After paying off the balance, funds become available, and the homeowner starts paying monthly interest on the loan balance.
- Home Renovation Loans– A home renovation loan is a type of second mortgage leveraged against your property. This second mortgage loan pays for home renovation costs and home repairs.
- Bridge Financing- Bridge financing serves as a vital link between selling your current home and finalizing the purchase of a new one, enabling you to leverage your existing equity. A bridge loan is very short-term, usually, between 1 to 6 months and only the interest is charged during the loan.
- A Second Mortgage- If your first mortgage is at risk of falling into arrears, consider a short-term second mortgage option.
- Debt Consolidation Loans- Debt consolidation loans can provide additional mortgage financing to merge all monthly debt payments into one debt payment. This private mortgage loan option will help a homeowner reliably cover housing costs while covering debt payments.
The Option of a Home Equity Loan
A Home Equity loan represents another great option. A home equity loan uses your equity, giving homeowners flexibility to decide its purpose. Most Home Equity loans represent a mortgage registered on your property or a given piece of real estate.
The loan usually pays out in one lump sum, secured against your home as collateral.
Use a home equity loan to pay off debts or immediate financial needs like home repairs. A lender will approve a home equity loan by assessing the Loan-To-Value (LTV), degree of equity, and your home’s appraised value. Simply put, the LTV ratio is the percentage of the property’s value owed in mortgages. If a homeowner has a home worth $1,000,000 with a $500,000 first mortgage and is requesting a $250,000 second mortgage, the LTV ratio for the requested mortgage can be up to 75% of the property’s value.
A bank can lend up to 95% of your home’s appraised value, which constitutes a 95% loan-to-value ratio (LTV). A homeowner will be required to have a credit score of at least 600 and considerable existing home equity to qualify for home equity loans in Toronto.
For those homeowners that may have poor credit, Toronto has a wide range of well-established and experienced private lenders that will be able to negotiate private mortgage financing and suitable terms for home equity loans in Toronto.
A private lender prefers at least $70,000 in home equity and bases mortgage financing on the property’s current appraisal. They’ll evaluate your home’s market value, condition, location, and potential issues like water damage or foundation problems.
In general, private lenders will assess the LTV at no more than 75% of the appraised value of the property in an urban location and 60% to 65% LTV for properties in more rural areas due to the inherent risk in bad credit loans that private lenders must take under consideration.
Steps to Prepare for a Home Equity Loan
Mortgage Broker Store is in the unique position of being able to directly negotiate second private mortgage financing depending on the particular financial picture of the homeowner. Access to a broad network of Toronto-based private lenders who will be able to negotiate the best terms on a private home equity loan.
Prior to meeting with a private lender, taking preliminary steps can facilitate the mortgage lending process, including the following:
- Have a recent appraisal carried out on your property
- Know your beacon score (credit score) and work to improve it
- Make a list of all your outstanding debts
- Make a list of all additional financial assets
- Research different second mortgage options
- Clearly state your needs for a home equity loan to negotiate suitable terms with your lender
What Rates Do Private Home Equity Loans Charge?
As with all mortgage loans, many Toronto homeowners want to secure the best possible rates on their second mortgage. They also aim to keep any fees associated with obtaining a second mortgage loan down.
Banks may offer slightly lower rates due to strong credit and low household debt ratios.
Private lenders typically charge rates between 7% and 12%, based on the homeowner’s financial circumstances. Most private home equity loans incur fees between 3% and 6% of the total loan cost. These fees include set-up fees and administrative fees.
Mortgage Broker Store Can Help a Toronto Homeowner with Any Home Equity Loan Needs
Mortgage Broker Store can help connect a Toronto homeowner to an appropriate private lender to meet home equity loan needs. We always strive to find the best match when looking at your mortgage and financing goals.
Working closely with a network of Toronto-based private lenders, we are more than happy to guide you in important decisions that you will make during the private lending process. We will steer you in the right direction in your mortgage search.