Bowmanville Second Mortgages

A mortgage loan is a great tool for helping you buy and own your own property. Normally, one mortgage is enough to cover the cost of a home in Bowmanville and help you and your family gradually pay back that cost rather than having to fork over a large lump sum. 

But what if you run into financial trouble, or find that you have to skip mortgage payments due to emergency expenses or other existing debts? In cases like these, you may want to look into taking out a second mortgage against your existing Bowmanville real estate property. 

What Is a Second Mortgage?

As the name might suggest, a second mortgage is a mortgage taken out against a property that already has an existing mortgage on it. Where your first mortgage is a loan that is used to cover the purchase price of a real estate property, a second mortgage is a loan that uses the existing property as collateral.

The loaned money you receive from a second mortgage can be put toward different objectives, but keep in mind that second mortgages are risky, since they are being borrowed against an asset that already has debts against it.  

Because second mortgages are riskier than traditional first mortgages, they are usually higher-interest, and shorter-term. Where a first mortgage might be paid off over 25 years or more, a second mortgage is often for a five year term or less.   If the property is sold -- for example, if the lender invokes power of sale -- the money from the sale goes toward paying off the initial mortgage first. This means if the home sale price is less than expected, the lender may lose money on the second mortgage. This is why second mortgages usually include higher interest rates.

Who Needs a Second Mortgage? 

People may take out a second mortgage for a variety of reasons. The advantage of a second mortgage is that it provides some financial flexibility even while you work toward paying off a major loan such as a prime mortgage.

A second mortgage might be an option if you need a loan to start a business, or if you want to consolidate debts such as credit card or student loan debt, along with existing mortgage debt, into a single monthly payment. Second mortgages may also occasionally be used to cover major emergency expenses -- repairs from flooding or fire, major car repairs, or renovations, for example.

How Do You Apply for a Second Mortgage?

Due to the aforementioned risks associated with second mortgages, these types of mortgages are rarely offered by banks or provincial financial institutions. Instead, if you’re looking for a second mortgage you’ll most likely need to approach a private mortgage lender or broker in your area.

If you’re unsure of the exact terms or conditions you’re looking for with a second mortgage, it’s probably a good idea to go to a mortgage broker -- mortgage brokers don’t lend mortgages themselves but rather connect borrowers to the right lender. A reputable mortgage broker in Ontario will have connections to a variety of different lenders, and can work with you to find a second mortgage loan and lender that suits your budget and financial needs, and can secure the funds you need without putting you in a precarious financial situation.

What Do you Need to Get Approved for a Second Mortgage?

Because second mortgages are usually lent by private or independent mortgage lenders, you don’t necessarily need to have a good credit rating to be approved for this type of loan. The most important factor that lenders will look for is equity. Equity is the value in your home or property that does not have a loan against it.

For example, say you purchase a home for $500,000. Your mortgage is worth $400,000, and at the time of purchase your down payment is $100,000. In this scenario, your home has 20 percent available equity, because 20 percent of its total value has already been paid.

This percentage is known as the Loan-to-Value ratio, or LTV, and it’s the factor that independent lenders will look at first when determining whether to approve you for a second mortgage loan. In general, an LTV of at least 20 percent will get you approved, though if you have more equity you may be able to secure a lower interest rate or a larger loan.

Feel free to email or call me if you have any questions at all!
I would love to give you some more clarification if need be. 

Phone: 905 926 5554