The second mortgage product is another mortgage on your home, that is registered in 2nd position on the charge. That means that you get a mortgage for a property that is already mortgaged with a primary first mortgage. The total amount of these two mortgages must not exceed 85% of the mortgaged properties appraisal value. The second mortgage solution has several risks and requires higher interest rates but it can be the only solution when you need a lot of money immediately.
Before the financial crisis, the second mortgage loan was very popular because it allowed many people to pay off high interest debt and invest in other options in taking advantage of the interest rate spread. Moreover, many people take out a second mortgage loan to pay their bills, to improve their property, and even to pay for their kid’s college. A second home mortgage is preferable but not everybody can manage or afford it. A second mortgage can eliminate your debts and simplify the process of payment with one single outlay each month. But many individuals risk their homes in the process, so they have to be sure they will be able to repay the second home mortgage loan on a scheduled basis. A point of consideration: the second mortgage means that the second mortgage loan will not have priority in the event of liquidation of the property for repayment purposes. It is the first mortgage that has priority and will be paid first, so in case of default, you risk losing your home’s second mortgage payment options in the event the lender decides to make the payments instead.
Sometimes people look to refinance their homes to get better rates in comparison to their current circumstances. When looking to refinance a second mortgage in Toronto you should take into consideration the following points: learn about the second mortgage Toronto options available to find the best second mortgage rate for your circumstance (the mortgage payment can become a serious challenge for your budget, so before coming to a decision one should select a mortgage broker in Toronto that will be able to provide you with figures that work within your finances); it would make sense to refinance the second mortgage with an institution you are working with or with the lender that has your primary mortgage. It will help you to save money on fees and other costs in the long run. As mentioned before, a second mortgage will have a higher rate than the first mortgage and hence it makes sense to combine the two at some point in the future. Many clients seem to be unaware or have no exit plan strategy when it comes to paying off their second mortgage, which can result in years of interest only mortgage payments that will get you no further ahead. Always work with a broker to determine your end strategy, even if that involves selling at some point in the future and down scaling.
It may be easy to go to a banks website and use their calculator to determine what your second mortgage payment may hypothetically be, however, that is never usually accurate until your file has been underwritten by the lenders credit team. If it turns out that the debtor can’t pay the mortgages or the 2nd mortgage in particular, the second mortgagee may initiate the power of sale process. Second mortgage foreclosure means that creditor has a right to sell the property as a way to recover his money if the debtor does not make a fixed second mortgage payment in time as scheduled. But lenders usually don’t start foreclosure right away, there is the power of sale process that has many steps to allow the parties to reach some form of agreement. A second mortgage can be a wonderful tool to leverage lower interest money to pay off high interest debt and in cases to invest in new property as well.