Homeowners who find themselves a little short of cash to complete a project or help a child through college might be wondering if a second mortgage is the answer. If you have equity in your home and want to take advantage of it without losing your property, then taking out a second mortgage in Toronto could work for you.
What is a second mortgage?
A second mortgage is a loan you take out using your current home as collateral. It is also called the home equity line of credit. Your first loan will remain the primary mortgage on your home if you have a second mortgage.
Understanding Details of a Second Mortgage
Like with any other loan, you’ll want to be sure you understand the terms and conditions of your second mortgage before you sign. Here are some things you can expect to see with an additional mortgage:
- A second mortgage will have a higher rate because it is more risk for the lender.
- To get a better rate, you’ll need to have a good credit score, lots of equity in your home, and a regular income.
- Financial institutions and private lenders both offer second mortgages.
- Getting a mortgage broker for a second mortgage is one of the ways to get the best rate and conditions.
- An appraisal or house inspection will be required.
- Second mortgages will likely come with early or late payment penalty fees.
Benefits of a Second Mortgage
There are some benefits for homeowners that take out a second mortgage, such as:
Cash: Taking out a second mortgage in Toronto allows you to access money that you can use on anything you want or need. If you are looking to borrow exceptionally high amounts, or higher than a personal loan can offer, then a second mortgage is the best solution.
Low-interest rate: Compared to other loans that you could get, a second mortgage has a lower interest rate. This makes it an affordable loan option for homeowners.
Drawbacks of a Second Mortgage
While there are some excellent reasons homeowners may want to take out a second mortgage, there are also some drawbacks that borrowers need to be aware of before they do so. These include:
Risk to your home: With a second mortgage, you might lose your home if you default on the loan. Because your property is used as collateral to secure the loan, the lender can foreclose on you if you stop making your mortgage payments.
Extra costs: Just like your first mortgage, there will be some added costs with a second mortgage. These include an appraisal fee, credit check, and other fees. Altogether, this could equal hundreds of extra dollars that you’ll have to pay for the privilege of taking on a second mortgage.
For homeowners needing a little extra cash, a second mortgage can be a great option, but it’s not for everyone. Talk to a mortgage agent before you decide.
If you are interested in learning more about second mortgages, then call Northwood Mortgage™ at 888-492-3690 or contact us here.