Taking out a Second Mortgage to Pay off Debt

Many property owners take out a second mortgage in Toronto on their property to unlock the equity they’ve built up in their homes. The idea of taking out two mortgages on the same home might sound daunting, but a second mortgage can make a lot of sense, and when used to pay down or off debt, can actually help you save money. Here are some answers to common questions regarding second mortgages.

What does it mean when you take out a second mortgage?

When you take out a second mortgage, you are taking out an additional loan on a property you already have a mortgage on. Just like the first mortgage, a second mortgage is secured against your property. And, just like a first mortgage, you repay the second mortgage on a monthly basis.

Is refinancing the same as a second mortgage?

Refinancing is not the same as a second mortgage. When you refinance a mortgage, you are applying for a new mortgage all over again. That means getting a new home appraisal, verifying employment, family income, and any debts.

Is a second mortgage and a home equity loan the same thing?

A second mortgage and home equity loan are the same; you are taking out a loan based on your home’s equity. That said, a home equity loan should not be confused with a home equity line of credit (HELOC).

A second mortgage operates like the first mortgage. After being approved, you receive a one-time lump sum payment that is paid off over a set period of time with monthly payments. Like a first mortgage, you are charged interest on the total amount as soon as you receive it.

A HELOC, while also secured against the equity you’ve built up in your home, operates like a revolving line of credit. Money is deposited into an account and you can use as little or as much as you like. You are also only charged interest on the amount you borrow.

How soon can you take out a second mortgage?

You can take out a second mortgage in Toronto as soon as you’ve built up enough equity in your home. What that magic number is will vary depending on what kind of lender you go to. Traditional lenders, like Canada’s big banks will need you to have at least 25% of equity built up in your home. A trust company will want to see equity of between 10% and 15%.

A private lender on the other hand, because they are not bound by the same rules, are a lot more flexible; with a private lender, you can have less than 10% of equity built up in your property.

As for how much you can actually access, with a second mortgage, you can borrow up to 80% of the appraised value of your home, minus the balance on the first mortgage.

How long does it take to get a second mortgage?

Again, it depends on what kind of lender you use. With the big banks or trust companies, it could take a number of days before you find out if you’re approved for a second mortgage.

If you use mortgage experts that have access to private lenders, you can be approved for a second mortgage in less than 24 hours.

What is the interest rate on a second mortgage?

A second mortgage in Toronto operates the same as a first mortgage, but, should you default on your mortgage, the first mortgage gets paid off first; any money left over goes toward the second mortgage.

Because there is more risk for the lender associated with a second mortgage, the interest rates are higher than first mortgages. But, the interest rate with a second mortgage will be a lot lower than other types of loans, this includes, credit cards, car lease payments, and other unsecured lines of credit.

Can you take out a second mortgage with bad credit?

Because there is a lot more risk associated with a second mortgage than a first, it can be difficult to get a second mortgage if you have bad credit (credit scores generally range from 300-900; the higher the better). This is true even if you’ve never missed a mortgage payment.

The big banks don’t like approving second mortgages if you have bad credit and will want to see a credit score of 650-900. Trust companies won’t sign on the dotted line unless your credit score is in the 550-700 range.

Private lenders though, because they are not bound by the same rules, will give you a second mortgage even if your credit score is less than 600.

Is it a good idea to remortgage to pay off debt?

Taking out a second mortgage in Toronto is a great way to pay off your debts. That’s because the interest on a second mortgage, while higher than the primary mortgage, is significantly lower than the interest charged by major credit cards and store credit cards. It’s also lower than interest charged on car leases and unsecured lines of credit.

Moreover, using a second mortgage to pay off your debt will help improve your credit score. This in turn, will mean you can apply for other financial products with even better terms and conditions.

What can you do with a second mortgage?

You can use your second mortgage for anything. You can pay off debt, buy a second home, pay for unexpected expenses, school tuition, the stock market, a wedding…anything!

How can Canadalend.com help you?

Second mortgages are an excellent way to tap the equity in your home to pay off debt. Unfortunately, stricter lending rules mean the big banks and trust companies are turning away more and more homeowners because they haven’t built up enough equity, have bad credit, or earn enough. Canadalend.com though makes it easy for homeowners to get a second mortgage.

How does Canadalend.com do it? The independent, licensed mortgage experts at Canadalend.com work with hundreds of different private lenders.

If you are interested in finding out what kind of second mortgage you qualify for contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.