First & Second Mortgages
What is a mortgage?
Simply put, a mortgage is a loan that is secure by real estate (asset). This type of loan can allows the lender to seize the property if the borrower is not able to pay off the loan in a set amount of time decided by both parties. Eventually, with multiple payments made, equity (value of the property) builds up.
What’s the difference between a first and second mortgage?
When we use the words “first” and “second” mortgages, we are not referring to the individuals experience with mortgages but rather the position of the mortgage on a specific property. Once you understand this, you will realize that it is possible to have more than one “first” and “second” mortgages with 2 or more properties.
- You have a home with a first mortgage and you require additional funds for a down payment towards a purchase of an investment property.
- You find that it is too expensive to break your existing mortgage and refinancing so you decide to get another mortgage on your property.
This would be considered a second mortgage because it is registered (chronologically) to your property behind an existing mortgage.
Once you have successfully acquired the necessary funds, you purchase the investment property with first mortgage. Notice that we do not consider this to be a third mortgage! Since the mortgages are placed chronologically on properties, unless there is an existing mortgage on the property, this new mortgage is considered as a first mortgage.
Reflecting on this specific example, you will notice that you have a total of three mortgages which include two “first mortgage” and one “second mortgage”.
We have been helping clients in Brampton & Mississauga as well as the surrounding GTA, acquire first and second mortgages for a variety of different reasons, based on various circumstances. Canadian mortgage services will help you find the right solution based on your current situation and help you achieve both your short and long-term goals.
Looking for mortgage services Brampton and/or mortgage services Mississauga? We offer a wide variety of mortgage solutions and we’ve helped many clients since 1988, and we are confident that we can find one for you! We will come to you! Contact us today for your FREE Consultation!
Q: Why would I ever get a 2nd mortgage, instead of just refinancing my existing 1st?
A: Depending on the circumstances, it may not be wise or possible to break your existing 1st mortgage, especially if you are in the earlier stages of the mortgage term. for example:
- The penalties to break the existing 1st mortgage are not appealing
- The existing mortgage is considered “closed” which does not allow to be repaid prior to the maturity of the mortgage
- The existing mortgage term (rate and other benefits) are too valuable to relinquish. For example, the existing rate is very low, as compared to current market rates
- Circumstances have changed which would not allow for an ideal mortgage approval (best rate, options, etc.)
Q: Is there a different mortgage approval process with each type of mortgage request?
A: In many cases, a 2nd mortgage may have a more relaxed approval process simply because they tend to be equity-based approvals. 1st mortgages however relay on all aspects of the application in the consideration process, such as credit, income, and equity.
Q: Does it look bad if I have 2 mortgages?
A: No this is a misconception. The mere fact that you have 2 mortgages has no bearing on your future financing opportunities. The things that banks consider are the underlying characteristics of the application that determine the weight of their approval decision. They would be interested in the “back story” to understand the circumstances that arose when the 2nd mortgage was taken. I.e., renovations, investment purposes, etc.