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Buying a new house is challenging. It takes a lot of planning and funds. In most cases, you arrange for the funds for the down payment on the new home through a loan from the bank or a mortgage brokerage, and the loan amount splits into monthly payments with some added interest. After the down payment, families are cash-strapped. The debt makes managing additional expenses, like renovations, repairs, and other bills, difficult. 

This is where a cashback mortgage comes in. Cashback mortgage in Canada allows new homeowners to get a portion of their mortgage back in lump-sum cash when they finalize the mortgage. Before looking at the pros and cons of a cashback mortgage, it is essential to understand what it is and how it works.

What is cashback mortgage?

With a standard mortgage, the bank or a lender provides you with the funds to pay for the house you want to purchase, which is some percentage of the total cost of the property. For example, if you decide to pay 20% down for a house that costs 600,000, your down payment will be 120,000, and the rest is a loan from the bank. 

A cashback mortgage is a mortgage wherein you get some percentage of the loan amount back in a lump-sum payment as a cheque or a bank transfer. For example, for a house that costs 600,000, you can give 20% as a down payment, meaning you will have to pay 120,000, and the remaining 480,000 would be a loan from the bank.

On this loan amount, you can get anywhere between 1% to 7% cash back when you finalize the mortgage, which means when the loan becomes final and distributed funds become available. Therefore, after you receive the loan amount, you will get an additional 4,800 to 33,600 as cashback as a bank transfer or cheque.

With cash back mortgage explained, let’s move on to the pros and cons of this type of mortgage.

Pros Of Cash Back Mortgage

    

1. Any extra liquid funds are always a blessing. A cashback mortgage allows you to have just that. After making the down payment, you may become more conservative with your expenses and even push back some necessary investments into the new home. Yet, with the cashback amount, you can do repairs/renovations, pay some bills, and even furnish the house.
       

2. Help with unplanned expenses. You anticipate expenses and prepare for them as a homeowner. However, accidental expenses could make things more challenging, especially when you have made a significant down payment. These expenses can be for unexpected plumbing repairs, an appliance breakdown, or some unexpected bill that pops up. 


    

3. Cashback mortgages in Canada come with lower interest rates than other forms of loans. It includes auto loans, a credit card, or opening a line of credit. 


    

4. The higher the loan amount, the higher the cashback. Since the cashback depends on the loan amount you require, a sizable loan amount will result in a significant cashback. However, you should understand the terms and conditions of the cashback mortgage before proceeding. In some cases, there is an upper limit to the cashback the lender will offer.

Cons Of Cash Back Mortgage

    

1. Higher mortgage rates. Cashback mortgages in Canada can come with significantly higher mortgage interest rates than standard mortgages. Interest rates apply to the complete loan amount and not just the cash back you receive. It means in the long run, you will end up paying more. In most cases, you pay more over time in interest than the amount you receive upfront.


    

2. You need to qualify for a cashback mortgage in Canada. Typically, the requirements for a cashback mortgage include reliable employment with an hourly rate, which means it is more difficult for self-employed individuals to get approved. 

   
      

   A credit score of at least 650 is also required. Furthermore, getting approved for a cashback mortgage is challenging if the extent of purchasing the home is renting it out. 

   
        

    

3. There are penalties for cashback mortgages in Canada. If you break your cash-back mortgage, you may have to pay back some or all of the cash you received as part of the cashback, which will be in addition to the prepayment penalty. A prepayment penalty is a fee that lenders charge if you pay all or part of your mortgage loan off before the duration you took the initial loan.

Should you get cash back mortgage?

Even though cashback mortgages in Canada have drawbacks, the upfront funds are helpful for most people. They can supplement your income while you recuperate from the heavy down payment. 

The interest rates for cashback mortgages are typically higher. However, the extra amount will only be paid in the long run, giving you sufficient time to grow your finances and not feel the pinch of the additional amount you would have to pay.

Cash Back Mortgage 101: Final Thoughts

There are some pros and cons to cashback mortgages in Canada, and you, as a new homeowner, should take the time to understand all the details before signing the contract. Conduct your research and find the right balance between the best interest rates and the best cashback amount. 

Our experts can help you every step of the way so you make the right decision. So, don't hesitate to contact Canadalend for the best expert advice. For more information about different types of mortgages, call Canadalend at 1-844-586-0713 or contact us here.

There are several reasons to take on a second mortgage on your home. It could be to have an investment property or vacation home, make home improvements, or even consolidate debt. Taking a second mortgage can be challenging because of the rules and regulations involved. It can also be difficult to handle paying two mortgages simultaneously. 

However, if you have decided to take out a second mortgage, there are a few essential elements to remember and common mistakes to avoid. Before getting into the mistakes people typically make when taking out a second mortgage, let’s discuss what exactly a second mortgage is.

What Is a Second Mortgage?

Simply put, a second mortgage requires getting additional financing on top of the pre-existing mortgage for the same property. It means taking out a second loan on your mortgaged house to get finances for various purposes like consolidating debt, having a vacation home or a second home when your children need it, or even making home improvements. 

The finances issued to you are against the equity built up on your first mortgage. Financial institutions issue second mortgages in two forms: a home equity line of credit (HELOC) or a home equity loan.

A HELOC allows you to borrow money up to a specified amount. Most major banks approve a HELOC if the homeowner has good credit with 20% or more equity. On the other hand, a home equity loan is a lump sum given to you that needs repaying over a fixed term. It is a one-time loan which can be ongoing.

Common Mistakes to Avoid When Taking Out a Second Mortgage

1. Not doing proper research.

Before making any decision—especially one as big as a second mortgage—you should research and gather information on your options. This should include the different mortgage providers, the state of the real estate market, the area in which you wish to purchase your second property, property taxes, and more. 

Only after gathering all this information can you make an informed decision.

2. Not taking a realistic look at your finances.

As part of your research, you must look at your finances and ensure you can afford to make two mortgage payments simultaneously. Making two sizable payments can be challenging. Furthermore, there are grave consequences for defaulting, for example, not being able to make payments. 

Review your budget and finances, and speak with a financial advisor to better understand your situation. Discuss the details with the mortgage lender as part of your second mortgage application process.

3. Not having a money management plan.

If taking on a second mortgage is to consolidate debt, you must have a strong money management plan beforehand. Consolidating debt means taking on a bigger loan to pay off smaller debts. It means you must understand how you got into debt and address the root of the problem. 

A second mortgage can become a burden if a strong money management plan is not in place.

4. Not paying attention to your credit score.

Another mistake that people make is neglecting their credit score. Even though you will be taking out your second mortgage based on the equity in your home, you need to pay attention to your credit score as well. 

Your credit history is still a crucial factor when securing a second mortgage. Review your credit report and take steps to improve it before applying for a second mortgage.

5. Not getting pre-approval.

Getting pre-approved for your second mortgage is an important step. It will let you know what kind of mortgage you can get, which will help you determine the investment type you can make. A preliminary evaluation can bring pre-qualification offers. You can find out your estimated interest rate and your maximum principal amount. 

However, your credit score will come into play when getting pre-approval. 

6. Not choosing the right mortgage provider.

If you already have a mortgage provider for your current property, you will likely use the same one for your second mortgage. It is a common occurrence. While not always a mistake, it can be in some cases. 

It is convenient to go to someone you have worked with before. However, in the case of a second mortgage, you should shop around. Don’t be afraid to explore other options or even consider a private mortgage lender if you don’t have one already.

7. Ignoring additional costs during budgeting.

If you want to purchase another property with a second mortgage, you must consider the additional costs involved, like furnishing the home, insurance, maintenance of the second property, and more. These should be accounted for when budgeting for a second mortgage. 

8. Going for the lengthiest term for monthly payments

People often go for the lengthiest term for their monthly mortgage payments because it is a lower amount. However, long-term payments incur more interest over the tenure of the loan, which can be significantly more expensive. 

While this increased cost is often covered with gradually increasing finances, taking on a loan for a shorter duration may cost you relatively less over the long run.

Final Thoughts

There could be various reasons for taking out a second mortgage, so the responsible way to go is to be well-informed, have a money management plan, and choose the right mortgage provider. Our specialists can help you avoid the common mistakes that people make when taking out a second mortgage. 

For more information about second mortgages or to start your application, call Canadalend at 1-844-586-0713 or contact us here.

Purchasing a home is never a small expense, especially not in Canada these days, as the housing market has recently seen record-high prices for homes in many places.

Therefore, the vast majority of people require a sizable mortgage loan in order to make the purchase of a home feasible. When it comes to such major loans, many people’s immediate instinct is to go to major banks to get this money.

However, there is another possibly more viable option in Ontario that also exists: getting a loan from a private lender. This is also often referred to as a B lender or a subprime mortgage lender.

When a private corporation or individual lends out their own money, they are considered a private lender. This category includes mortgage investment corporations that pool together money from private investors in order to fund syndicated mortgages.

Private lenders are not federally or provincially regulated because they do not accept deposits from the public. Since private mortgage terms are generally shorter and come with higher interest rates and fees than from traditional lenders, they are mostly meant to be a temporary measure to use before transitioning back to typical mortgage lenders.

Who should seek help from a private lender?

While not everyone may require the services of private lenders in Ontario, there are a number of different categories of people for whom these types of lenders can be incredibly helpful.

Traditional lenders can be quite strict when deciding on who to lend to. However, as private lenders are much less strict, their biggest clientele base includes the different groups of people who are most likely to be denied a mortgage loan from a traditional lender.

Therefore, the following are the most common groups of people that are perfect candidates for a loan from a private lender:

1. New immigrants

Unfortunately, many recent immigrants likely do not have enough work experience within the country or a good enough Canadian credit score to be approved for a loan by a traditional lender.

Although not all private lenders will immediately accept mortgage loan applications from new Canadian immigrants, there are exceptions. Indeed, the chances of getting a loan from a private lender under such circumstances is still definitely higher than getting one from a traditional lender.

2. Self-employed individuals and those with irregular incomes

Since most traditional lenders want to see at least two years of employment history in Canada before offering a mortgage loan, if someone is self-employed or their income is irregular or commission-based, they may not be approved for such a loan. Thus, such people may also opt for a loan from a private lender.

3. Individuals with foreign income

These days, with remote work becoming increasingly common, it is more commonplace for Canadians to be employed by foreign companies. However, when it comes time to apply for a mortgage loan, if you only have foreign income, it will be difficult to get approved by a traditional lender, whereas some private lenders may still offer you a loan.

4. Individuals with bad credit scores

Another factor that deters traditional lenders from accepting a mortgage loan application is a bad credit score. However, private lenders may have mortgage loan options available even for those who have sub-par credit scores (below 600). That being said, if your credit score is particularly bad, the mortgage interest rate that you are offered may be especially high.

Important Factors to Consider When Deciding on the Right Private Lender in Ontario

If you have settled on going with a private lender to get your mortgage in Ontario, there are a number of different factors to carefully consider in order to find a lender that is the best fit for you. These factors include the following:

1. Private lender fees

Since private lenders are not subject to any regulations in Canada, they can each set their own fees and lending conditions.

Before you agree to a loan from a private lender, make sure you have a full understanding of their fees, including private lending fees, brokerage fees, legal and appraisal expenses, set-up costs, and administration fees.

Note that you may be able to find certain lenders that charge much lower fees than others. It helps to form a budget ahead of time, as this will guide you in the right direction and help you find a lender that is well-suited to your needs.

2. Interest rates

While the average interest rate you will be offered on a mortgage loan from a private lender will generally be higher than those from traditional lenders, shopping around for a private lender can be beneficial, as some of them offer much better rates than others.

It can be helpful to consider a given lender’s interest rate and fees as two parts of a bigger picture. For example, one lender may offer an 8% interest rate without fees, while another may offer an interest rate of 6%, but by the time all of their fees are added up, this may equate to about 9%.

3. Mortgage conditions

Another matter that is important to ask questions about before signing a mortgage loan agreement with a private lender is the conditions of the loan. For instance, it is necessary to understand exactly what will happen if you miss a mortgage payment.

It is also essential to understand elements of the loan such as prepayment privileges, or penalties and potential costs to get out of the mortgage. Never sign a mortgage loan agreement until you know exactly what you are getting into, and do not be afraid to ask questions ahead of time.

How Canadalend Can Help You Find a Reliable Private Lender

If you are searching for private lenders in Ontario who will work with you to meet your needs as you pursue a private mortgage loan, you can rely on Canadalend to keep your best interests in mind.

We have access to banks, credit units, and other alternative private lenders, and our agents always work hard to ensure you get access to the best, most competitive rates available.

If you ever have any doubts or questions, our agents would also be happy to answer your questions and offer guidance, as they have a thorough understanding of all products, features, and rates.

When you work with Canadalend for mortgage loan approval, you will never have to worry about frustrating delays. Our agents are available seven days a week to ensure that your application stays on track. We genuinely care about your needs and will always go the extra mile to get you the mortgage loan that you are looking for.

For more information on how we can help you find the best private lenders in Ontario, or to learn about the role we will play in the process of getting you a mortgage loan, call Canadalend at 1-844-586-0713 or contact us here.

Most people are familiar with the term “mortgage”—taking out a loan from the bank to help cover the payment of a house when you cannot afford to pay the full amount in its entirety.

When you take such a loan from a lender, the property itself gets used as collateral. Thus, it is necessary for you to pay this loan back to the lender on a monthly basis in fixed increments along with interest to avoid losing the house.

While this process is common knowledge for most, as the vast majority of people cannot purchase property without a mortgage loan, fewer people possess the same level of understanding about second mortgages.

A second mortgage is a mortgage you can take out while your original mortgage is still in effect. This allows you to access a significant amount of cash, usually in the form of a lump sum.

Like a first mortgage, this loan must be paid back in increments over a set period of time at a fixed or variable interest rate. The amount that you are able to borrow depends on the amount of equity that you have built up in your house. Equity is the value of the portion of the house that you technically own after having paid off your first mortgage.

4 of the Most Commonly Unknown Facts About Second Mortgages

Most people are more comfortable applying for a first mortgage rather than a second one because of their level of familiarity with it. Still, it is important to understand second mortgages, too, in the event that you ever need one.

Because second mortgages share some similarities with first mortgages, there is a lot of grey area surrounding this type of loan. The following are some of the most commonly unknown facts about second mortgages:

1. Second mortgages typically come in two main forms

While there are technically a number of different forms that second mortgages can come in, the two main types are a revolving home equity line of credit (HELOC) and a closed second mortgage.

A HELOC, which usually has a variable interest rate, is a revolving line of credit secured against the equity of your home. This means that after using a portion of it and paying it back, you continue to have access to the funds should you require them again, functioning like a credit card.

On the other hand, a closed second mortgage will provide you with a lump sum payout all at once. This loan generally has an interest-only payment structure, which involves you paying it back on a month-by-month basis.

2. A second mortgage is a secured loan

Another element of second mortgages that most people are unaware of is that they are typically secured loans, which means that your house serves as collateral.

Thus, if you are ever in a situation where you cannot pay back the loan to the lender, they could potentially initiate a “Power of Sale” or put a lien against the property to guarantee that the outstanding debt will be paid.

It is incredibly important to understand the risk of losing your home if such circumstances arise before you sign on for a second mortgage, as this should not be taken lightly.

3. The most common uses of a second mortgage

How are people supposed to know if they could benefit from a second mortgage if they do not fully understand what this type of loan is commonly used for? The majority who opt for a second mortgage tend to use it for the following things:

Debt Consolidation

Getting access to a hefty chunk of cash can help those who are facing serious debt to pay off these debts and combine them into a single payment that is easier to manage.

Using a second mortgage in this way to pay off unsecured debt has a number of advantages, as it often helps reduce the amount you are spending on interest while also improving your credit score, thus increasing your chances of accessing more favourable lending options down the line.

Home Renovations

Another factor that encourages people to apply for a second mortgage is the prospect of renovating homes. Revamping a house is one way to really make it feel like home while also boosting its market value. However, it is difficult to take on such a project without a steady flow of cash to fund it, which is why a second mortgage could help.

4. Second mortgages come with fees

Although a second mortgage can be incredibly helpful to many people, it is essential to understand the cost, as there are several fees that must be paid as part of this process.

Some of the most typical costs associated with a second mortgage include brokerage, appraisal, closing, and legal fees, which could easily add up to several thousand dollars altogether.

This is why it is critical to consult with a reputable and reliable mortgage broker before making a final decision regarding a second mortgage. They can best explain the exact costs that you will be facing before any contracts get signed.

How Canadalend Can Help You Secure a Second Mortgage

Now that you know more of the specific details pertaining to a second mortgage, if you believe that you could benefit from this type of loan, and you would like to apply for a second mortgage in Ontario, Canadalend has you covered.

No matter the reasoning behind your desire for this loan, our lending experts are happy to advise you every step of the way to ensure that your needs are satisfied throughout this entire process.

Someone from our knowledgeable and experienced team would be glad to sit down with you to discuss your personal circumstances so that we can ensure our advice best suits the particulars of your situation.

We have access to a variety of second mortgage lenders located in Ontario, including many who do not require certain income or credit qualifications. With years of experience under our belts, we are used to fine-tuning our approach as needed, and it is always our top priority to ensure our clients get the financial support they need.

We will gladly set up an appointment for a free personal consultation to discuss your interest in a second mortgage and advise you about how we can help you reach your financial goals.

For more information on how we can help set you up with a second mortgage that works for you, or to learn about how we can connect you with top-quality lenders, call Canadalend at 1-844-586-0713 or contact us here.