A second mortgage Toronto is the second loan taken against your home and it is secured with your home as collateral. The first such loan against your home or property is your first mortgage. In the event of a default, the first mortgage will hold priority and will be repaid first. The proceeds from the sale of your house will be paid first towards your first mortgage and the remaining amount will then go to the second mortgage. Second mortgages are usually amortized loans, which are repaid according to a pre-decided schedule.
How you can benefit from second mortgages in Toronto?
Second mortgages allow homeowners to use the equity in their homes to meet important or urgent expenses. A popular reason for taking out second mortgages is to fund home improvements or do remodeling to enhance the value of the house that will enable the house to fetch a good resale price.
Second mortgages can also be used to pay off credit card debt through a process known as debt consolidation. The interest rates on a credit card are very high and debtors often struggle to repay the money they owe on different cards. This high-interest debt can be consolidated into a single, reasonably low-interest debt by taking out a second mortgage. The rates on second mortgages in Toronto are lower compared to credit card rates. Your multiple debts are combined into a single debt, making your life much easier. All you need to do is make timely monthly payments and you can become debt-free very soon.
You can also use this mortgage for meaningful expenses such as your children’s college or tuition fees. Some business-savvy homeowners also direct the funds from a 2nd mortgage towards low-risk and high-profit investments or sometimes purchase a second property with the money. It is easier to qualify for a 2nd mortgage if your approach your current mortgage lender. The lender may also waiver some fees, such as the origination fee or application fee.
Pitfalls of second mortgages in Toronto
Second mortgages from your existing lender come with a higher interest rate than the first mortgage for the obvious risks involved with such a home loan (as the first mortgage is prioritized if you default). A valuable asset such as your home is put at risk when you take out a 2nd mortgage. If you fail to make payments on time, you can face foreclosure and your whole world might just come crumbling down. So make sure you take out this mortgage only if you can justify the expense. Though your lender may waive certain fees, you will still have to pay the closing costs and other charges, which can add up to a significantly high amount.
It is no denying that a second mortgage is a great option to convert home equity into liquid assets, you should think twice before exercising this option. You can either approach your existing lender for a second mortgage or pick one from the several 2nd mortgage lenders offering competitive rates and terms in your city.
The following are 3 critical tips for managing a second mortgage:
Select the appropriate timing
The first critical tip for managing a second mortgage is to choose the appropriate timing. When a lender conducts an analysis of your finances to determine whether you are a good candidate for a loan, timing is critical. Six months prior to applying for a loan, you should abstain from making any large purchases that could have a temporary negative impact on your finances and credit score. For instance, avoid purchasing a car, space out your home purchases, and avoid opening a credit card to obtain additional funds. These factors may have an adverse effect on obtaining a second mortgage immediately.
Consult with a seasoned mortgage broker
The second piece of advice for managing a second mortgage is to work with a reputable second mortgage Toronto broker. Because purchasing a second home can be significantly more complicated than purchasing a primary residence, a mortgage broker can assist you in navigating the various mortgage and tax options available to you. For instance, suppose you’re purchasing a second home from a family member who wishes to give you a gift of equity to cover the down payment costs. A seasoned mortgage broker will understand how to navigate these unique circumstances and get your second mortgage off to a good start.
Keep distinct bank accounts
Another management tip for a second mortgage is to maintain separate bank accounts. Not only will separating funds help you stay organized, but it will also assist a lender in determining your financial fitness when it comes to approving you for another mortgage. Keep in mind, however, that transferring large sums of money between accounts in the six months prior to working with a lender is not a good idea, as it may have a negative effect on how the lender views your finances in certain events – but not always. Contributing to a separate bank account for your second mortgage for a year or more is an excellent way to stay on top of your finances while preparing for a second mortgage. Learn more about silent second mortgages here.