The ability for homeowners to tap into the equity in their homes can provide financial flexibility. Financial needs arise all the time and financial circumstances are always fluid as well. 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 principal paid down the more equity will be available to access. One such decision to be made when it comes to 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 prove difficult to determine which type of the second mortgage would suit a Toronto homeowner’s financial objectives.

If paying down high-interest debt and accessing the funds to pay for other financial obligations is top of the list, then a home equity loan may prove to be beneficial.

This may also be the desired time to take the steps necessary to secure second mortgage financing. With housing appreciation in Toronto and throughout the surrounding GTA at impressive levels reflective of a very robust Toronto housing market, homeowners can take advantage of these newfound property gains.

According to Ontario Real Estate Association (OREA), the year-over-year increase in August 2021 as compared to the same month in 2020 represents 22.6%. These impressive gains put the average price of a single detached property at $1,086,625.

Different Types of Second Mortgage Loan Options

When you already have a first mortgage on your property then any additional loan that you may take out using your home as leverage will be considered a second mortgage loan. 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. Funds become available once the balance is paid off and the homeowner must pay only the monthly interest on the balance of the loan.
  • Home Renovation Loans– A home renovation loan is a type of second mortgage leveraged against your property. This type of second mortgage loan is used to pay for any home renovation costs and home repairs.
  • Bridge Financing- Bridge financing provides a bridge between selling your home and closing on a new tapping into 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 a first mortgage is in danger of falling into arrears, a second mortgage can be taken out on a short-term basis to provide the funds to help pay the monthly payments and/or any associated legal fees if default proceedings have been initiated by a lender as well as helping to pay off the arrears on the first mortgage. A second mortgage can also be used for other short-term financial priorities in lieu of taking out a separate loan obligation.
  • Debt Consolidation Loans- Debt consolidation loans can provide much-needed 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. With a home equity loan, the money that you are borrowing comes from your equity and a homeowner has the flexibility to decide what purpose(s) they may use the loan for. Most Home Equity Loans represent a mortgage that is registered on your property or a given piece of real estate.

The loan is paid out in one lump sum and your home is used to secure the loan.

A home equity loan can be used for any number of purposes including paying off liabilities, using the funds for immediate financial needs such as 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.

A bank will lend up to 95% of the appraised value of your home which is defined as 95% LTV. A homeowner will require to have a credit score of at least 600 and considerable existing home equity to qualify for a home equity loan.

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 a home equity loan.

A private lender will prefer to see at least $70,000 in home equity and will be basing mortgage financing on a current appraisal of your property. He/she will be looking to assess the current market appraised value of your home, the current condition of your property, the location of your property, as well as taking into consideration any potential ongoing issue with your property such as water damage or foundation issues.

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. We also have 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.

Before sitting down with a private lender is always beneficial to take some preliminary steps to help facilitate the mortgage lending process including:

  • 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
  • Be clear on why you are requiring a home equity loan and articulate this with your lender to help facilitate the suitable terms on your mortgage loan

What Rates Are Charged on a Private Home Equity Loan?

As in all mortgage loans, many Toronto homeowners want to secure the best possible rates on their second mortgage. It is also a goal of many Toronto homeowners to try to keep any fees associated with obtaining a second mortgage loan down.

Although the banks may be able to offer slightly lower rates than their private lender counterparts, this is due to basing lending on strong credit and low debt household ratios.

A private lender will tend to charge rates between 7% to 12% depending on the unique financial circumstances of the homeowner. Fees associated with most private home equity loans will fall between 3% and 6% of the total cost of the mortgage loan. These fees include set-up fees as well as 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 lander to meet any home equity loan needs. We are always striving towards finding the best match when looking at your particular 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 be making during the private lending process. We will steer you in the right direction in your mortgage search.

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