Getting a Second Mortgage in Canada: Here's What to Consider
Second mortgages can be a smart financial decision as long as you understand the risks, and look at it as an investment into something that may have bigger returns in the future. Higher education, renovations, debt consolidation, and smart investments are usually the main reasons to take this on. Not only will this give you extra cash, but it can also protect your investment. However, before you jump on this decision, you must take time to research and understand the idea first.
Before getting a second mortgage, you need to consider key points. Besides weighing the pros and cons, you'll also need to consider the risks involved as well. For this reason, it's worth researching mortgage strategies to ensure you're safe to step into this decision.
Perhaps you're here because you're considering getting a second mortgage. If that's the case, keep reading. Here are some of the things you need to consider when getting a second mortgage in Canada.
What is a Second Mortgage?
A second mortgage is another loan you can take out based on the equity of your house. If you take out a second mortgage, you'll be using the equity in your house as collateral. This means that if you fail to pay back this loan, the lender can sell your house to pay for the remaining debts.
It's also important to note that a second mortgage is much costlier than the first mortgage since the borrower undertakes a more serious risk.
How Does a Second Mortgage Work?
When the lender gives the second mortgage, they'll make a note of the loan on your home title. This means that the lender will have a right to your home if you fail to pay back the debt. If you're giving a second mortgage to your parents, there's a possibility that they might foreclose the home.
Along with this, you'll need to make regular payments on this loan just like on any other loan. When your loan gets paid off, the lender will remove the loan from your home title. In case you fail to pay back the loan, the lender can sell your home to pay for it.
With most 2nd Mortgage Lenders" they require you to own at least 20% of your property. Some will be more flexible but the price will increase - see below for examples.
RATE ESTIMATES:
35% Equity Owned = 2nd mortgage: 8.99%
20% Equity Owned = 2nd mortgage: 10.49%
15% Equity Owned = 2nd mortgage: 11.49%
ONE-TIME FEES:
Lender Fee: 2% of the mortgage amount
Broker Fee: 1% of the mortgage amount
Why Should I Get a Second Mortgage?
There's no doubt that a second mortgage is a smart mortgage strategy that could help you in so many ways. Here are different reasons you should get a second mortgage:
Debt Consolidation: If you have a lot of debts that are too high, you can use this loan to pay those off. This will allow you to regain a more consistent cash flow.
Assistance with Poor Credit: If you have poor credit, you can take out a second mortgage. This will allow you to get better credit at a later stage. Together with that, your credit history won't get as many downgrades.
Get Urgent Cash: If you're in dire need of money, a second mortgage will help you get the cash you urgently need. Perhaps you need this cash to pay off an important debt. Or perhaps you desperately need cash for something you really want. Worst case scenario, your parents can give you a loan using their home as collateral.
The Bottom Line: Know More About Second Mortgage in Canada to Ensure You're Making the Right Financial Decision
Before taking out a second mortgage, you'll want to be certain about your decision. For this reason, you'll want to do extensive research on this. Perhaps one of the best ways to do this is to consult a mortgage expert. An expert in this field will provide you with more information on the risks involved and implications. This will help you make the right mortgage strategy and decision.
How Can Level Up Mortgages Help You?
If you're looking for mortgage strategies in Canada, you've come to the right place. Our team at Level Up Mortgage streamlines the whole mortgage process for new homebuyers, newcomers, and self-employed individuals. Learn more about how we can help you today!
See what you qualify for or contact Paul to get your pre-approval.
Paul Davidescu (www.levelupmortgages.com)
Level Up Mortgages
604-809-3188
paul(at)levelupmortgages.com
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