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Introduction to Second Mortgage in Ontario Canada
Owning a home is an ongoing commitment, with new responsibilities and issues arising daily. As long as you have equity in your home, a second residential mortgage can help you fund additional expenses and other financial needs.
Second mortgages explained
What Is A Second Mortgage Loan?
A second mortgage loan is a lien / charge registered on the title (deed) of a property in second priority, for the purpose of getting financing from the equity of a home. Second mortgages, have a term, interest rate, monthly payment, pre-payment penalties, maturity date and the same characteristics as a first mortgage. Although there are similarities between first and second mortgages, in terms of framework, the term, interest rate, monthly payment, and features of a second mortgage differ greatly from a first mortgage.
A second mortgage interest rate is higher than a first mortgage interest rate, as lenders are exposed to higher risk for having a second mortgage priority on the title of the property. Also, second mortgages traditionally don’t have credit or income qualifying requirements.
Second mortgage process
How Does A Second Mortgage Work in Toronto, Mississauga, Brampton, Hamilton, London, Ottawa?
Just like a first mortgage, the process to get a second mortgage is very similar, however there are different qualification requirements.
- Borrower(s) must apply for a second mortgage
- Their mortgage broker will order a property appraisal from an approved appraisal company
- Once the appraisal inspection has been complete, and the report provided, the broker can shop with second mortgage lenders to get a mortgage commitment
- Upon the mortgage commitment being issued and signed by all parties
- All conditions of the mortgage commitment must be satisfied, then the lender will send mortgage instructions to the borrower(s) lawyer
- The borrower(s) then would arrange to meet with their lawyer to sign final second mortgage closing documents
- On the date of closing, the lender will fund the second mortgage, once they are satisfied with all conditions
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Getting a second mortgage
How To Get A Second Mortgage Second in Toronto, Mississauga, Brampton, Hamilton, London, Ottawa
To begin the process in getting a second mortgage, first you will need to first consult options with a mortgage broker prior to submitting an application, to preliminarily understand what is involved in the second mortgage process, including costs.
After consulting second mortgage options with a mortgage broker, all borrower(s) must complete a mortgage application and provide valid government issued photo ID. The mortgage brokerage will then order an appraisal inspection and the borrower will schedule the inspection directly with the appraisal company. It is important for the mortgage broker to order the appraisal as it must be from a lender’s approved appraisal company.
Once the mortgage broker has received a mortgage commitment with terms, and an interest rate agreeable to the borrower(s), the borrower(s) will need to sign the second mortgage approval documents and fulfill all conditions required by the second mortgage lender. Second mortgage approvals traditionally don’t have income or credit qualification requirements. Upon all conditions being satisfied, the borrower will need to arrange to meet with his/her lawyer to sign and complete the mortgage, and receive any funds, should there be monies available from the equity take out.
Why Are Second Mortgages Good?
A second mortgage can be a great way to capitalize on your growing equity in your home without breaking your current mortgage products and taking on a prepayment penalty. A second mortgage can be a great way to:
- Consolidate debt
- Source additional down payment funds for another purchase
- Fund renovation costs
- Investing
- Paying for school
What are second mortgage rates?
Second Mortgage Rates Explained
Second mortgage rates are usually higher than first mortgage rates, as there is higher risk to a lender lending a second mortgage. Most lenders will have a set return on investment (ROI) they wish to have for their mortgage loan. The ROI yield is usually between 12% to 14%. In a second mortgage, for the investor, the ROI is comprised of the second mortgage interest rate, and a lender fee.
Second mortgage interest rates can range from 8.99% to 12.99%, depending on the loan to value and overall risk profile of the borrower. Second mortgage rates are determined by the overall risk factors to the second mortgage lender.
Requirements For A Second Mortgage
How Much Can I Borrow As A Second Mortgage in Toronto, Mississauga, Brampton, Hamilton, London, Ottawa?
There are very minimal requirements for a second mortgage. Second mortgage approvals are based upon the equity available in a property. Second mortgage lenders require a minimum of 10% to 15% equity in a property. Use the second mortgage calculator to see how much equity you can borrow from your home, with monthly payments and interest rate.
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Frequently Asked Questions About Second Mortgages
A good option would be to apply for a home equity line of credit. You can also apply for a second mortgage approval up to 90% LTV.
A trust company or a private lender would be a good option to explore. Our mortgage consultant would help you navigate these circumstances.
A homeowner may consider obtaining a second residential mortgage for a variety of reasons, including:
- Difficulty getting a personal loan (secured or unsecured), possibly due to self-employment
- Higher interest on the remaining balance when renewing your mortgage, possibly due to a lower credit rating than when you borrowed your first mortgage, to the point where the extra cost is comparable to borrowing some more.
- The need for a less expensive option if breaking your mortgage early incurs a high penalty.
Since your home serves as collateral, a second mortgage poses a lower risk to the lender. The interest rate on a second mortgage is higher than the interest rate on a first mortgage.
It is important to understand all your risks associated with a second mortgage and high leverage debt. Consult us to help you understand the risks and advantages to taking out a second mortgage on your property.
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