Guide to Second Mortgages in Toronto

Many people do not realize that they can take second mortgages on their property. Some properties even have more than two loans on them. So, what is a second mortgage? It is a second loan taken on your home, on which a primary mortgage already exists. Complete or part of the owned home equity acts as the collateral for a second mortgage in Toronto.

Your second loan will be a lower priority compared to the first legally. In the event of a default, the primary mortgage will be paid off before the second mortgage. If you have refinanced your first loan after you have taken out a second mortgage, you have to put in a request to the lender for the subordination of your second loan. In case you do not do this, the second loan will be given priority over the first.

Circumstances under which you can opt for second mortgages in Toronto

  • If you have chanced upon an investment scheme that looks promising. The requirement here is that the return on investment should be higher than the interest rate of the second mortgage, which is the only profit-making scenario.
  • If you are in debt that has accumulated over the years in the form of auto loans or your child’s tuition fee that you need to pay off, you can consider a second mortgage.
  • If you get a loan that is about one-fifth of your original home purchase amount, you can avoid the payment of private mortgage insurance.
  • It is a fact that the interest rates of the second mortgage loan are higher than those of the first mortgage. And this is so because, in the event of a default, the first mortgage will have priority over the second. It is also a fact that the second loan is offered over a lesser period than the first loan.

What it does not mean

A second mortgage in Toronto does not mean it would save you from the first mortgage. A track record, which shows that you have not been paying your first mortgage judiciously, will affect your chances of getting a second mortgage negatively. If you have a good record of payment on your first mortgage, it would be easier to get a bank to finance your second mortgage.

How to get the right second mortgage in Toronto

Researching and shopping for the right second mortgage in Toronto is very important, as you need to be aware of all your options. Do not accept the first loan offer that you get. Instead, compare all offers you receive to pick the one that best suits your financial situation.

Read the fine print

Ensure that your loan doesn’t come with a costly prepayment penalty. This is to have the option to clear off your second mortgage and avoid paying the full term interest in case your earnings increase in the future.

Reading carefully all the documents you are required to sign and be in complete agreement with all the terms and conditions is extremely important. Knowing as much as you can about second mortgages and how they work will always come in handy.