17 Jun What Is a Second Mortgage
Are you dreaming of building a chef’s kitchen? What about the new spa ensuite you’ve always wanted? Maybe your kids are clamoring for a pool and you love the idea of creating a backyard oasis.
If you’re in need of a loan, the options can seem overwhelming. Do you go to your bank? What about a credit union? Is it best to get a line of credit? Should you simply use your credit card for a cash advance?
Often, the best solution is a second mortgage. But what exactly are they and how do they work?
According to the Business Dictionary, a second mortgage is a “Loan secured by the home owner’s equity (market value of the property less balance on the first mortgage) in a property that is already mortgaged. Second mortgages are junior (subordinate) to the first mortgage and, in case of a foreclosure sale, are paid out only after the full satisfaction of the first mortgage.”
A second mortgage can give you access to a large amount of money, as it lets you tap into the equity in your home.
There are several benefits to using a second mortgage. First of all, the interest rates are usually much lower than other options. Unless a loan is backed against one of your assets – such as your home like when dealing with mortgages – interest rates can be sky-high. Since a second mortgage is a secured loan, it’s a much more affordable option.
Another benefit to second mortgages is their flexibility. You can choose the term that works for you, from a few months to several years. You can also opt for different features such as skip a payment, payment holidays, underpaying and overpaying. You get to keep some control over how quickly you pay back your loan.
A second mortgage can be used for a variety of reasons. Canadians have successfully used second mortgages to renovate a home, to buy a car, to go to school or even to start a business. Borrowers will need to prove they can meet the monthly payments, but they have quite a bit of freedom when it comes to how they will use the money.
Many homeowners who decide to take on a second mortgage do so for debt consolidation reasons. With interest rates on credit cards at 20 percent or more, and payday loans at even higher rates, it doesn’t take long for borrowers to feel crushed by large bills. In this type of situation, a homeowner can use a second mortgage to pay off their loans in full, replacing them with one smaller, lower-interest monthly payment.
It can sometimes be difficult to secure a second loan from traditional lenders, especially for those just starting out. It’s even harder for self-employed or seasonal workers, or those who don’t have perfect credit. A mortgage broker has access to alternate or private lenders that are often willing to issue a second mortgage.
Curious if a second mortgage is right for you? Call us to speak to one of our licensed mortgage brokers. We can provide you with mortgage advice and a free, no obligation quote.