May 3, 2019 Kristen Godel

When Should You Take a Second Mortgage?

Second mortgages are probably the most contemplated type of mortgage. When should you take a second mortgage? … Is the major question. Well who is anyone to determine that for you? There should never be any pressure to take a second mortgage, but to help clear your dilemma; we’ve outlined some of the most common reasons for taking out a second mortgage on your property (based on our expertise).

  • When should you take a second mortgage? When you need to consolidate high interest unsecured debt.

Unsecured debt can range between 19.99% – 28.99%. That’s nuts. Second mortgages range from 6.99% (for home equity lines of credit) to 11.99% for fixed private second mortgages. That’s a lot lower, and when you need to free up cash flow/rebuild credit, a second mortgage is a good idea.

  • When should you take a second mortgage? When you need to pay off mortgage arrears/property tax arrears.

First mortgage banks/lenders are scary when you’re in arrears with them. On top of that, the Government can place a lien on your property for property tax arrears. Sometimes the quickest way to raise capital is through a second mortgage to pay them out and bring everything back into good standing.

  • When should you take a second mortgage? When you need to renovate.

Renovations are pricey. An upgrades kitchen or finished basement can easily cost $40,000. Maybe you need to increase the appeal/value of your property as a strategy prior to selling. Maybe you’re just tired of having an outdated home. Either way, a second mortgage may be a good option if the bank refuses to give you additional money.

  • When should you take a second mortgage? When you need to send your kids to post-secondary school…or maybe even yourself.

If your kids are lucky, you might be willing to pay for their schooling to help them out. On the low end, tuition, book and accommodation can easily cost $50,000 over 3-4 years. Instead of taking out OSAP, maybe you have sufficient equity in your home and want a HELOC / Second mortgage to carry you through. Many of our passed clients have done this.

  • When should you take a second mortgage? (This is probably the most important one) When you would rather not file a consumer proposal/bankruptcy.

If you have sufficient equity in your home, it is almost always better to take out a second mortgage to pay debt off rather than just assuming you have no choice but to file for bankruptcy.

When should you take a second mortgage? The truth is there are endless reasons. Equity take outs are very personal decisions and most people have a very good reason for it. Sometimes it can be for reasons as sad a death or for reasons as positive as to purchase another home for investment. If used correctly with the right/purposeful intention a second mortgage can be the solution that saves you from future credit/financial problems. One thing to keep in mind, there should always be an exit strategy as well. Thankfully, we have the experience to help you with both!