A second mortgage can be a great tool for homeowners in Brampton who are looking to access some cash from their home equity. But what exactly is a second mortgage and how can it be used to your advantage? Here is what you need to know:
What is a second mortgage?
A second mortgage is simply another term for a loan that is secured by your home equity and registered on homes title. It does not require you to break or change your first mortgage you currently have in place. Most lenders will allow you to borrow up to 80% of your home value with very little requirements. That means that if your home is valued at $500,000 and you still have $200,000 owing on your current mortgage then you have $300,000 in home equity remaining and could potentially borrow as much as $200,000 with a second mortgage. As the total loan on your home would be at $400,000 combined at 80% of your homes total value.
Once you have obtained the second mortgage, you will have two mortgages that you will have to make your regular payments on. When the term of your second mortgage is up, you may choose to pay the balance off in full with cash or refinancing by combining your first and second mortgage into one mortgage payment and you may renew the second mortgage with the lender – just as you would do with your first mortgage when it is up for renewal.
The interest on a second mortgage will be a little higher than that of a first mortgage as it seen as more of a risk compared to a first mortgage. However, don’t let this stop you from getting the loan you are looking for as this method of borrowing is still much more affordable in terms of interest than other types of loans such as credit cards or unsecured loans.
What are the main reasons why someone would get a second mortgage?
One of the most popular reasons why some homeowners in Brampton get a second mortgage is to consolidate their outstanding debts. Compared to the interest rate on credit cards and other unsecured loans, the monthly payments can become overwhelming, and you can feel you are stuck in debt without making any real progress. But since the interest rate on second mortgages is much lower, it makes perfect sense to consolidate your debts with a second mortgage so you can lower your overall interest rate and lower your monthly payments so you can get out of debt much faster and save money in the progress.
The other main reason for getting a second mortgage is to finance a larger purchase or expense such as home renovations or start up capital for a business. As home values have gone up dramatically in recent years, so has the borrowing power of Brampton homeowners. And again, the low interest rates on second mortgages make this an appealing option for those looking to borrow large sums of money.
Are there any drawbacks to getting a second mortgage?
Like any loan, you need to make sure that you are comfortable making the payments before you apply for a second mortgage. Because you will be using your home as collateral, you risk having a lien put on your home or even being put into foreclosure if you cannot make the repayments.
How can I get a second mortgage?
The best way to get a second mortgage is to do it through your mortgage broker. Because your mortgage broker is a license professional, they only work with licensed lender and will look out for your best interest and ensure you are not getting taken advantage of from unlicensed lenders if you were to act out on your own. Not to mention that a mortgage broker works with many different licensed lenders, it is easy for them to compare interest rates from various companies to ensure that you get the best possible deal.
Depending on how much you wish to borrow, the lender will require you to get verification that your home equity is sufficient. In this case, they will require you to get a home appraisal report completed from an approved list of appraisal companies. Not to worry your mortgage broker can help you arrange for one as a part of the process.
Contact me today
If you are looking for a low interest way to borrow money, then a second mortgage may be the right option for you. To further explore your options, contact me today to set up an appointment.