A second mortgage is a loan that is taken against a property that currently has a mortgage. Junior liens or second mortgage allows you to keep the property as collateral security in order to get the cash you need to pay off your debts or anything.
Who Can Get A Second Mortgage:
Each lender has its criteria to obtain a Second Mortgage Ontario. However, in most cases, they are the same.
- You must provide proof of income and employment.
- A minimum of 20% equity in your house and a minimum credit score of 620 is required.
- Keep your debt-to-income ratio below 43 percent. That is the amount of income you use to service debt.
Forms Of Second Mortgages:
Below is a list of some of the most common second mortgage types.
- A home equity loan (also known as a HEL) is a type of the second mortgage that gives you a lump sum that you have to repay at a set rate over a specified period.
- A home equity line of credit, also known as a HELOC, is an open-ended second mortgage and has an adjustable-rate from which you can withdraw cash when needed and repay the same over time.
How Does The Second Mortgages Work?
A second mortgage is an additional loan secured by your home even if the first one has not been paid off. You can borrow against your equity to get a second mortgage. The amount is equal to the difference between your home’s current market value and the balance amount of your mortgage. You may be eligible to borrow as much equity as 85 percent of your home’s value if you meet the credit score and the lender requirements.
A second mortgage is an entirely different loan than the first. The monthly payments for both loans are made simultaneously. Since the property is used as collateral for the second mortgage, it reduces the risk to your lender. It will likely have a lower interest rate than a credit card, personal loan, or any other type of debt.
Risks In Taking A Second Mortgage With A Higher Interest Rate:
Suppose you are in the worst-case scenario, where you file for bankruptcy or go into foreclosure. In that case, the original lender will get paid first, and any remaining money would be distributed to the second mortgage lender. This scenario could lead to the second mortgage lender not fully repaying their loan, leading to higher interest rates.
Steps To Get A Second Mortgage
A second mortgage can be obtained in the same way as a first mortgage. Find out more here about the minor differences.
- Calculate how much equity you have and how much money you would like to borrow.
- Keep a record of your income and debts.
- Compare second mortgage lenders.
- Decide the type of second mortgage you want to go for. A HEL or HELOC? These questions will help you whether you prefer a lump sum amount of money or a flexible line of credit.
- Apply for a second mortgage
- Check out the disclosure papers. You can verify that the terms are as you expected and that you can afford the payments.
- Provide additional documents that may be required for underwriting.
- Close the second mortgage loan.
If you are interested in learning more or want to find out if a second mortgage is appropriate for you, don’t hesitate to contact us, and we will ensure that you are guided through the whole process. You can get answers to all the questions regarding second mortgages here.