If you need funds quickly, but don’t have cash in the bank and can’t get a loan, borrowing on your property is a good next option.
In fact, getting a second mortgage in Toronto is usually cheaper than a loan because you are using equity in your home as security for the borrower.
Second Mortgage in Toronto
However, there are certain steps you can take to improve your chances of getting a second mortgage. If you have applied for a loan and been refused, you’ll know the reason why—and it’s most likely bad credit history.
First, use one of the three main online credit bureaus to find out what your credit score is. By checking out your credit rating, you should be able to pinpoint the problem and possibly fix it. For example, if you are weighed down with credit card debt, find a way of paying it off. Or, at the very least, increase your monthly repayments.
How to Take Out a Second Mortgage
Now, let’s take a look at the options. The first one is to take out a second mortgage, using the equity in your house as security against the second loan. If your bank or current mortgage lender won’t give you a second mortgage, then shop around. The best place to start is with a decent mortgage broker, who will have access to many different sources of funding, including online banks and financial firms.
When it comes to a second mortgage, 99 percent of the time you will pay a higher interest rate than the rate on your first (primary) mortgage. Your repayments will likely be higher, too. Don’t just take the first mortgage on offer. If the terms don’t work for you, such as a high interest rate or high payments, then ask the broker to seek out alternatives. You need to find a second mortgage that works for you and within your budget.
Finally, with this first option, you will likely be in the position of making two mortgage payments a month. That can stretch your finances and make covering your monthly expenses challenging.
Cash-Out Refinance Loan
The second option is to consider a cash-out refinance loan. This option is a new mortgage loan that replaces your current mortgage and, in addition, gives you the sum in cash that you want to borrow. The interest rate is going to be higher, and your monthly payments will be higher too. That means you have to think through this option carefully. If you suddenly lost your job, how would you make the second mortgage payments, as well as your day-to-day living costs?
If, after exploring every option for a second mortgage, you can’t find a lender, think about asking someone to co-sign your loan. This means that the co-signer will be responsible for the debt if you fail to make your payments.
Get the Facts Before You Borrow
Despite everything we’ve said above, you may find that the interest rates on the second loan are in fact lower, depending on the current interests rates and the economy.
Whatever you decide to do, check out the overall costs, conditions, and terms. And if something is confusing or doesn’t make sense, be sure to ask questions. At Northwood Mortgage™, we will help you find that second mortgage in Toronto—even if you do have a bad credit rating.