A second mortgage, also known as a home equity loan, is a type of loan where a lien is placed on a property that already has a first mortgage. While the interest rates on second mortgages are typically higher than those on first mortgages, they are a popular option for homeowners who want to access the equity in their home to consolidate debt, make renovations, or invest in other areas.
If you’re considering a second mortgage, it’s important to get a market valuation of your property from an estate agent. It’s highly advisable to get multiple valuations to ensure you get a true and fair estimate of your property’s value.
To determine the size of the mortgage you may qualify for, you can calculate the loan-to-value ratio (LTV) by dividing the amount owed on the property by its estimated value. The lower the LTV, the better your chances of qualifying for the desired mortgage amount.
Lenders typically offer up to 90% of the equity in your home for a second mortgage but will require an appraisal and closing costs. You’ll be expected to pay for the appraisal. Second mortgages typically have a shorter term and are interest-only loans.
It’s important to note that a second mortgage is subordinate to the first. This means that in the event of default, the first mortgage is paid off before the second, making the second mortgage riskier for the lender. Since second mortgages are usually arranged with private lenders, it’s best to contact a mortgage broker to help negotiate the best deal for you.
Our experienced team at Certified Mortgage Brokers can assist with second mortgages. We provide expert advice, find suitable lenders, negotiate favourable terms, and guide borrowers through the application and closing process.