Toronto and the GTA have experienced an unprecedented rise in housing appreciation throughout 2020 and this trend has maintained strength as we enter the fourth quarter of 2021. Coupled with significant appreciation, Toronto homeowners have also been witness to a substantial increase in the number of housing sales through this same 18 month period.
Although factors that include extraordinary low mortgage rates and a marked lack of housing inventory have helped to drive these robust housing numbers, we have also been in the midst of a pandemic that could have created the opposite housing scenario.
Real estate professionals were predicting a significant drop in the price of Toronto homes at the onset of the pandemic. This clearly did not occur. The year-over-year housing increase represents 28.1% compared to this time last year, according to the Toronto Housing Report for August 2021.
Despite these encouraging housing numbers for Ontario, some homeowners may have felt the economic squeeze to household finances making it increasingly more difficult to meet monthly housing costs. What if you also have poor credit? Although it is more difficult to obtain mortgage financing, those Ontario homeowners with damaged credit can still approach well-established and experienced private lenders to take out various second mortgage options.
Different Types of Second Mortgage Loan Options
One distinct advantage that existing homeowners have is the flexibility to utilize equity in their homes to be used for different financial purposes. A second mortgage is an additional mortgage on a home that is already mortgaged using the home itself as leverage for additional mortgage financing. Let’s look at some of the second mortgage options available to a Toronto homeowner:
- 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.
- Home Equity Loans- Just as in the other second mortgage options, a home equity loan will utilize existing equity and provide a homeowner with one lump sum to be used for any number of financial purposes from paying down high-interest debt to covering home fix-ups. The homeowner is responsible for paying monthly interest payments on the loan.
- 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.
What Do Private Lenders Look For When Determining Loan Amounts?
Just like a bank, a private lender will be looking to first and foremost provide mortgage financing based on mitigating risk the best they can. To reduce the risk on a poor credit mortgage loan, a private lender will be assessing a few aspects:
- The degree of the existing equity in your home
- The appraised value of your home
- The location of your property
- The overall condition of your property
- The calculator of the overall Loan-To-Value on a given property
A private lender will prefer to see more than $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 ( what the fair market value of your property is compared to similar properties and market conditions), the current condition of your property (including all renovations and fixes in addition to any drawbacks to your property such as water damage or foundation damage).
A private lender will also be assessing the location of your property (urban properties will be deemed as more desirable and therefore less of a financial risk for a private lender), as well as taking into consideration any potential ongoing issue with your property.
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.
What Can You Do To Prepare for a Private 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 second mortgage loan.
Prior to meeting face to face with a private lender is always preferable to take some initial steps to help facilitate the mortgage lending process including:
- Make a list of all your outstanding debts
- Make a list of all additional financial assets
- Have a recent appraisal carried out on your property
- Know your beacon score (credit score) and work to improve it
- 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
Mortgage Broker Store Can Help a Toronto Homeowner With Any Second Mortgage Loan Needs
Mortgage Broker Store can help connect a Toronto homeowner to an appropriate private lander to meet any private second mortgage 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.