Second Mortgage Brokers in Toronto

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.

Reasons You Should Go For A Second Mortgage in Toronto

If you are a Toronto homeowner in dire need of money, a second mortgage can come to your aid. Such a mortgage can be taken out to pay mounting credit card debt, an outstanding car loan, or help you tide over a financial crisis. But you should have a clear idea about how this loan works before you apply for one. If you rush into a deal, you could end up risking your most valuable asset- your home. At the same time, with some smart thinking, you can use the mortgage to pay off other debt or for home improvements. You can use the equity in your home in the following scenarios.

Debt consolidation

You can take out a second mortgage to consolidate all outstanding debt. If you have acquired loans from multiple sources it becomes obligatory for you to make a monthly repayment to all those accounts. However, this repayment can get difficult when your finances hit a rough patch. A situation like this often slips out of hand and you may find yourself on the verge of bankruptcy. An additional inflow of cash can become your source of deliverance in such a situation. This mortgage can give temporary respite from this predicament and buy you some extra time to battle the odds.

Homeowners generally take out a second mortgage in Toronto to consolidate high-interest credit card debt into a low-interest debt. Your various credit card debts can be combined into a single, manageable payment. You also benefit from easy and convenient repayment. You are spared the trouble of making payments to multiple accounts. If you prefer mailing your bills, you can save on postal charges.

Avoiding PMI

This mortgage is also advantageous for a homeowner since it does not require him to pay private mortgage interest or PMI which is involved with the first mortgage. Homeowners can access 85% of the home’s value and place the remaining in the second mortgage. Though the mortgage may have a slightly higher rate of interest, you can realize cost savings in the long run as your entire loan will become tax-deductible in certain cases.

Keep this in mind when you go for a second mortgage in Toronto

As with any financial product, there are risks associated with this type of mortgage. For starters, you are effectively putting your home at risk. If you fail to make your monthly payments, your home/property can go into foreclosure if you do not keep current with your obligations. In some provinces, the owner is held responsible for any deficit that may remain after the foreclosure of collateral. So, you will have to arrange for the outstanding balance that has to be paid to the lender, worsening your existing financial crisis.

A second mortgage in Toronto can work miracles for you if you know how to use it to your advantage. You can approach your current primary mortgage lender for this second mortgage in the form of a home line of credit. The lender may waive some fees, helping you save on mortgage application and processing costs and fees. Credit unions also offer flexible terms and competitive rates- so make sure you give them a try as well. If you would rather approach a new lender, make sure you compare different lenders, rates, and terms before taking the plunge.

What Should You Remember When Taking Out A Second Mortgage?

A second mortgage is a loan against your home, which is subordinate to the first loan secured against the same property. The term ‘second’ is prefixed to the name because if the loan goes default, then the first mortgage gets paid before the second mortgage. For this reason, second mortgages often carry higher rates of interest.

Second mortgages allow you to convert the equity in your home to liquid assets, which helps when you are going through a difficult financial phase. Homeowners also take out second loans for important stock market/real estate investments or home improvements. The prospect of using the equity in your home may look alluring, but you should take out the mortgage only if you can justify the investment. Here are a few basic tips that will guide you through the process of getting a second home loan.

Choose APR smartly

Before choosing APR on the loan amount, you should talk to various sources. Contact at least one bank, one dedicated lender, and one credit union to secure the best available rate. Do not choose the first lender that you come across. Despite foreclosures and a struggling economy, you can still get competitive rates. Request for quotes from online lenders as well. Try to negotiate a low rate of interest if you have a good credit score and sufficient home equity, to avoid making additional payments. A Toronto second mortgage broker would be an ideal asset to deal with in this matter.

Avoid default and prepayment penalties on your second mortgage

Be careful not to get locked in on a mortgage that comes with a prepayment penalty. You will have to fork up a significant amount as a penalty if you pay off the loan earlier than the specified term – usually 3 months interest if not more. So your plans of getting out of debt soon can come to a standstill if you are stuck with a prepayment penalty in the event you chose to pay the loan early. Also, avoid second mortgages that come with default penalties, which are imposed on missed or late payments. It is advisable to go for second mortgages that have flexible terms and agreements.

Do not include insurance policies

Some second mortgage loans come with various voluntary insurance packages. These can inflate your monthly repayment and make it difficult to continue making payments in the long run. Besides, you might already have those insurances covered under a different plan. In such a case, including these policies may become unnecessary. If you want to opt for insurance covers, you can get them done separately via an insurance broker, instead of securing it through a mortgage itself .

Avoid short term second mortgages under 6 months

When the lender offers a very short-term second mortgage, all the fees associated with lender and broker fee are due for the term of the loan. Always consider taking a one year term else, you will have to pay a large balance amount at the end of the loan term. While initial low payments may look attractive, you may struggle to make a big payment towards the end and even end up defaulting on the mortgage if you cannot find a suitable second mortgage lender at that time.

Taking out a second mortgage is an important financial decision, one which needs careful evaluation. Even though you are essentially using your home’s equity, you are also creating debt. So, a thorough number crunching is necessary before making any hasty decisions. Draft your monthly budget and see if your income can cover living expenses and monthly debt payments comfortably. Importantly, borrow from a reliable lender and choose a competitive second mortgage product.