June 29, 2016 nkad3

Things to Know About Taking Out a Second Mortgage

Taking out a second mortgage is a common request in the mortgage industry, more common than it used to be. Reasons for taking out a second mortgage may include but are not limited to; debt consolidation, clearing judgements/liens, personal investments, investment properties, renovations, weddings, vacations, etc. The possibilities are really endless, and the reason for that is because second mortgages are equity loans. What this means is that the institution or private lender who is providing the second mortgage, is doing so because there is sufficient equity in the home to ensure a safe investment. Second mortgage can either be private, or institutional. ‘Private’ means the money is coming from private sources – this option usually required less stringent underwriting guidelines. ‘Institutional’ would be the opposite, and money from these sources can be a little harder to get, but are often cheaper to obtain. Regardless, the process is far less complex than that of a first mortgage or home equity line of credit through an ‘A’ bank. Often times depending on the lender, taking out a second mortgage may not involve steps that a first mortgage or institutional mortgage would involve; ex. appraisals, credit checks, employment verification, etc.

 

However though the process is very different, similarly to your first mortgage, taking out a second mortgage will involve the following:

  1. Monthly payments typically made by post-dated cheques calculated by an agreed annual interest rate
  2. A term of usually 1 year, renewable on maturity at the discretion of the lender (discretionary meaning that timely re-payment habits are shown throughout the term)
  3. Terms and conditions regarding mortgage default (similar to any first mortgage)
  4. Like any secured mortgage, a second mortgage must be closed by a real estate lawyer

 

Taking out a second mortgage does require some thought as to how the loan will be re-paid or consolidated into a new first mortgage at a later date. It’s important to discuss these scenarios with us as they are great short term solutions, but may not be the best long term strategy. We’ll help you work out the short/long term strategies to make sure you won’t be forced to carry it longer than you expected. Lastly, taking out a second mortgage does not need to be the default solution. If there is a more affordable/feasible option that presents itself, we’ll be able to assess which solution will work better for you based on your need for the money, time line, strategy, etc.

If you would like to learn more, please feel free to contact us today at 905.455.5005.