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Second Mortgage in Toronto VS HELOC

The terms home equity line of credit and second mortgage are mistakenly used interchangeably by most consumers. Even though both options offer you an opportunity to borrow against the equity in your home, their payouts differ significantly.

The difference in how pay-outs are made

The first major difference is that a HELOC comes with an approved limit, and you can withdraw several times, whereas a second mortgage is paid as a lump sum.

When you qualify for a home equity line of credit, you will be allowed to borrow small or large amounts to fund your projects (so long as you do not exceed this approved limit). It works similar to a credit card. You can withdraw small amounts or larger ones that are still within your limit.

On the other hand, a second mortgage, which is also referred to as a home equity loan, doesn’t offer you a pool of funds that you can access and withdraw several times. With a second mortgage, you get a lump sum payment upfront once it is approved.

Difference in how interest is charged

Secondly, there’s a major difference between how interests are charged in a HELOC and a second mortgage. With a HELOC, you repay what you’ve borrowed within a month, so the interest is never fixed, but it is calculated against how much you’ve borrowed. The payments must be made on time, and you can continue borrowing so long as you haven’t exceeded your credit limit.

On the other hand, a home equity loan often comes with a fixed interest charged together with the lump sum and you are expected to pay a fixed instalment during the term of the loan. It works much like any other type of loan since you cannot borrow again using your home’s equity until it’s fully paid.

Pros and Cons of Getting a Second Mortgage

Second mortgages can help consumers access funds to invest in some projects, but they also come with certain limitations.

Ability to borrow high amounts

Second mortgages allow you to borrow amounts that are much higher than what you may be able to qualify for if taking a personal loan. In many cases, homeowners can borrow up to 80% of the value of their home.

Lower interest rates

Second mortgages typically attract lower interest rates compared to personal loans and other types of financing. They are considered one of the most affordable types of financing.

Limitations of second mortgages

You risk losing your home: One of the biggest limitations of taking a second mortgage is that it puts you at risk of foreclosure if you fail to make payments and default on the loan. To avoid this, we encourage homeowners to only take a second mortgage if they can afford to make the extra payments comfortably.

Additional costs: Another drawback of a second mortgage is that they attract additional costs that you will need to cover in your monthly payments. For instance, an appraisal of the property must be conducted at the homeowner’s account. Other fees, such as credit checks and origination fees, can also make this form of financing expensive for homeowners.

What Can You Do with a Second Mortgage?

Most homeowners will take a second mortgage to:

  • Consolidate debt and enjoy lower interest rates
  • Renovate their property to improve the overall value
  • Avoid paying mortgage insurance
  • Buy a car
  • Cater to wedding expenses
  • Invest in their children’s education
  • Pay for emergency medical costs
  • Buy an investment property
  • Invest in their business

We recommend using the funds you obtain from a second mortgage wisely. If not used properly HELOCs and second mortgages can sink the consumer into further debt. A second mortgage shouldn’t be seen as an easy way of spending more money. It is smarter to put that money into worthwhile projects that can even help you build more wealth opportunities in the future. When looking for projects to invest in, consider the risks.

Before applying for a second mortgage, you need to find a valid reason to take out this debt and check to ensure you’ve gathered enough equity in your home to qualify for this loan. The next step, which is quite important, is identifying the right lender who can offer you a suitable product. We have certified mortgage brokers who will take the time to understand your unique circumstances and get you the best solution. If you need help to secure the best second mortgage, our experts can help.

Second Mortgage Info

Second Mortgage - It Might Be Right For You

  • Home Inprovements
  • Mortgage Arrears
  • Tax Arrears
  • School Tuition
  • Creating a home equity line of credit
  • Purchase extra property
  • Wedding

Second Mortgage in Toronto - Best Rates In Ontario

We offer Second Mortgage in Toronto and the rest of Ontario. Being our valued customer, we hold your best intentions when advising you and making changes. A second mortgage is a serious decision and should be made wisely. By working with us, you will also get the lowest possible rate for your second mortgage and you won’t be charged with ridiculous fees like you will be at some of our competitors. Depending on the amount that you need and for the time that you need for, we will create a unique solution for you. Contact us today to discuss getting your second mortgage.

Second Mortgage Benefits

People get a second mortgage or even third, typically to consolidate debt without disrupting their first mortgage. There are many of other reasons however as well. The main benefit is that a second mortgage can become a fantastic source for additional money to flood in. Nonetheless this second mortgage will have to be paid off eventually. Before any funds go to paying off the second mortgage, the first loan would need to be taken care of completely.

We Make You Aware Of Pros & Cons

If you are in need of extra cash and feel that a second mortgage is the way to go then let us help you at Certified Mortgage Brokers to go through the process of getting it correctly.

You have to keep in mind that there are risks involved as with any loans and because of that it is very important to turn to a reliable professional.

We Educate You About The Options You Have

If you have already paid off a portion of your home and/ or the market value of the home had risen then you are especially a good candidate for a second mortgage. Even if this is not the case for your situation, then there are still options that we can provide for you.

What Is A Second Mortgage?

A second mortgage is a loan that uses the equity on an already mortgaged property as collateral. Equity is the difference between the market value of your property and the amount that you owe. Equity grows over time as the market value of the property increases, and as you repay the capital on the loan.

A portion of every mortgage repayment comes off the capital raising the equity. A home owner may decide to use the equity in his home to finance other projects. The loan that he takes out is a second mortgage as he already has a first mortgage.

The interest rates on a second mortgage will be higher than the interest rate on your first. This is because the first mortgage takes precedent over the second. The second mortgage is paid only once the first has been fully covered. This means that the second mortgage holder carries more risk than the first since he may not fully recover the loan if the borrower defaults.

When you take out a second mortgage you can borrow up to 80% of the equity in your home. The main benefit of the second mortgage is that property owners can obtain large sums of money at relatively low interest rates.

How Do Second Mortgages Work?

Second mortgages are financial instruments which allow property owners use the equity in their property to secure a second loan.

They come in more than one format. You can arrange a single lumpsum payment where you typically pay back the capital in set monthly payments. The capital, the interest rate, the repayments and the repayment term are all included in the contract. Once you have paid off the mortgage, you would have to conclude another mortgage contract if you wanted to borrow against your home equity again.

Many home owners use their home equity to secure a Home Equity Line of Credit or HELOC, which is basically revolving credit. When you have a line of credit the money is available when you need it. You don’t have to use it and you won’t pay interest on it until you do. The lender sets a top limit and you can borrow and repay it as it suits you. You only pay interest on the amount that you owe.

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Use a Second Mortgage to Pay Off High Interest Debts and Lower Monthly Payments

Current Mortgage Second Mortgage
Current Home Value $400,000 Current Home Value $400,000
$200,000 Existing 1st Mortgage = $1,165/month $200,000 Existing 1st Mortgage = $1,165/month
Before Taking Advantage of Home Equity $50,000 2nd Mortgage = $250/month
$20,000 Auto Loan @ 10.0% = $430/month Auto Loan = Paid
$20,000 Credit Card @ 18% = $600/month Credit Card Debt = Paid
$10,000 Store Card @ 28% = $300/month Store Card Debt = Paid
Total $2,495/month Total $1,415/month

 

You Save $1,080/month!!!

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Reasons Why It Might Be Right For You

There are many reasons that property owners obtain a second mortgage. We’ve listed a few below

  • Buying another property – buying to rent is often a good investment decision since you can use the rental to help pay off the mortgage. The problem is often finding the money to make the down payment. A second mortgage could be the answer.
  • Investing – you may need the money to start a business or to take up an investment opportunity.
  • Consolidating debt – Many people use a second mortgage to pay off more expensive unsecured debt. This is because the interest rates on a mortgage are considerably lower than the interest that you will pay on a credit cards or other unsecured loans. The lower interest rates reflect the lower risk of secured loans.
  • Renovations or upgrades to property – It makes sense to use a second mortgage to improve the value or condition of that property
  • Education – property owners use may use a second mortgage to upgrade their skills or fund their children’s education.

Second mortgages give property owners financial flexibility at a relatively low rate or interest.

Frequently Asked Questions

How Does a Second Mortgage Work?

Superficially, a second mortgage works much like a first one. You will borrow a sum of money from a lender based on the value of your home. You will then need to repay this principal amount, along with the interest, over a set period of time. The difference is that you will now effectively be being off two mortgages on the same home that may or may not be of equal value.

Another difference is that should anything happen that causes you to become unable to pay off your mortgage and the bank takes possession of your home, the first lender will be compensated first. Only if anything is left will the second lender be compensated. This is why requirements are often stricter on second mortgages and the rates are higher.

Why Get a Second Mortgage?

Is there anything that costs a large amount of money that you want to buy but you just don’t have the money on hand? Yes, you could also buy it on credit. However, large purchases like a boat, a new car, or that massive renovation project may not be available on credit or the interest rates can be much higher than compared to a mortgage from a bank or lender.

If you are in this situation, getting a second mortgage on your home might be the best option. Your interest rate payment will be slightly higher than your first mortgage but should still be better than buying on credit, opening a line of credit, or a vehicle/chattel loan. As your home is a “fixed asset”, you also know that your collateral is safe and sound as long as you can keep up your payments.

How Do I Qualify For a Second Mortgage?

The process to apply for a second mortgage will be very similar to applying for a first mortgage and any broker or lender might offer a second mortgage. However, there are usually fewer lenders willing to do so as not everyone is equally risk-tolerant.

The requirements for a second mortgage will also be higher than for your first mortgage. Because you already have a mortgage to your name, your debt-to-income ratio will naturally be higher from the onset.

The following factors will play a big role:

  • Credit score: You will need a good credit score that’s at least 600 but preferably between 700-900 for most lenders.
  • Equity: This refers to the amount of your home’s value that’s technically no longer mortgaged. The closer you are to fully owning your home and amortizing your mortgage, the better.
  • Income: Lenders will be even stricter on a stable source of income that’s sufficient to cover your debts for the foreseeable future.

Let Us Help You Secure Your Second Mortgage

With a wide range of products, a client-focused mentality that aims to get you the best solution, and highly knowledgeable experts – we’re in the ideal position to help you secure the best second mortgage.

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Afton Jaskolski
2020-12-30

Getting a private mortgage was not easy to be honest, but at least with Mr. Leon it was doable. Thank you for your help!

Davin Mills
2020-12-26

There are a lot of mortgage brokers in toronto to choose from, I was a bit intimidated by that. Don't regret I picked CMB, they took the lead and made sure to cover all the bases

Tracy Wilhoite
2020-11-21

I was renting an apartment for a long time and finally decided to take a big step - get a mortgage instead. Team at certified Mortgage Brokers laid out various options for me. The actual process went smooth and quick, happy with my new home.

Ryder Turcotte
2020-11-16

My wife and I decided to refinance our mortgage and started looking for a mortgage broker in Toronto. There were so many options, so you can imagine how overwhelmed we got! After talking to Leon we decided to proceed with Certified, didn't regret that decision once. They always gave useful recommendations, were attentive, and constantly in touch. And most importantly (for us) they helped us to save some money!!

Lucy Zimmerman
2020-11-11

Vita was great. Helped my son with all the paperwork and got him very good interest rate. On the closing date called to follow up if everything went fine. Quite a pleasant experience. I would recommend this firm for anyone who is looking a mortgage broker.

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