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It used to be that the three long term commitments in a person’s life were their job, their marriage, and their mortgage. Over the years there has been a decline in the job-for-life ethos and social change has meant people may live together for many years without getting married. The mortgage, however, has stayed relatively similar to how it was, aside from the continuing cycle of rate changes.

What has become increasingly common is homeowners utilizing a second mortgage, either for a fixed sum or line of credit, for personal or property-based reasons.

How Second Mortgages Work

Primary (or “First”) mortgages are a straightforward concept, you borrow a lump sum to purchase a property and pay back the loan, with interest, using the house as a guarantee. A second mortgage takes a more refined approach.

A second mortgage is levied against the equity that has accrued in your property over time. The equity increases in value in several ways; it increases as you pay off your primary mortgage, as the real estate market grows in strength, and when you improve the property’s value through regular maintenance and improvements.

While a primary mortgage is a fixed amount lump sum, secondary mortgages can offer an additional line-of-credit option. With a line of credit, you make the same basic agreement with a lender, a total amount versus the equity value in your property, but you do not have to take the whole sum. Instead, it can be used as a fund that you draw upon as and when needed up to the maximum agreed with the lender.

With both types of loan, fixed and credit, lenders will determine your equity value and then allow you to borrow up to a certain percentage of it, usually topping out at around 80%. This is to protect lenders and borrowers from changes in the market and personal circumstances.

Second Mortgage Rates

Both the lump sum and credit options come with the expected rate options; fixed or variable. While there are many lenders, with many different options, the general rule of thumb is for lump sum loans to include a fixed rate option and for line-of-credit loans to be based on variable rates.

It is also worth noting that interest rates on secondary loans are higher than those on primary loans. This is to protect lenders in the event of foreclosure. If you have a primary mortgage with one lender, and a second with another, the primary mortgage gets paid off first by the foreclosure, with anything remaining going towards the secondary loan.

As with any kind of loan be prepared to do some extensive reading on the proposed fees and penalties associated with your loan. These can run the gamut from paying for credit checks in advance of a loan being approved, right through to closing fees at the end of the loan’s schedule or for early repayment.

What Second Mortgages Are For

As noted above one of the factors in increasing equity value is repairs and improvements to a property.

The core idea of borrowing to make these kinds of improvements is raising the value of your property by a sufficient amount that makes repayment of the loan easier when the time comes to sell. There can also be ancillary benefits to making ecological improvements to a property. Reducing the carbon footprint, or raising the energy profile, of a property can have a tax-deductible benefit to it. This varies across provinces, but it is worth considering if a loan for these alterations could have a tax benefit for you.

A second mortgage can also provide more personal support in the form of debt consolidation. Access to a lump sum can allow borrowers to pay off multiple debts and reduce the total amount of interest they are paying on those debts. By focusing the debt in this way, it becomes more manageable, the risk of defaulting any particular loan is reduced, and a continual series of on-time payments can improve your credit score.

Choosing a Second Mortgage Product

Second mortgages are no different to primary in that there is a great diversity of products available for lenders to choose between. Each with a different set of rates, schedules, penalties, and small print clauses. Borrowers want to get the best deal they can, one that matches their needs, but the sheer breadth of choice can be overwhelming.

At Canadalend.com we have a dedicated team of experts who have decades of experience connecting borrowers to the products that fit their needs and expectations. They can do this because they work independently of any lending organization. They are not being incentivized to sell you a specific product, they work with you to find the right product for you.

Whatever your circumstances, whatever your reasons for considering a second mortgage, contact Canadalend.com today to start exploring your options with one of our experts.

One of the key elements of owning property is maintaining or increasing the value of your investment so that when it comes time to sell, you turn a profit. While general upkeep and repairs are essential, renovations, extensions and additional amenities can all add to the value of your property. But how can you free up the money to do that?

Refinance and Build

The most direct option is to consider refinancing your existing mortgage arrangements. By shopping around you can find alternate schedules or lower rates of interest that free up some of your income each month.

If you are embarking on a long-term project, where work will be undertaken (and services or materials paid for) monthly, then having that extra cash flow each month allows you to plan and budget more effectively. Alternatively saving the money each month for a period, such as a year, can total a significant sum that can be used as a deposit or full payment for improvement works.

When you consider alternative finance it’s best to begin by determining your budgetary needs. Once those are set, you can start looking for a financial product that will allow you to meet the targets you have. Also, be mindful of what fees you may incur for switching products and to include this in your calculations. If you are looking at a decreased interest rate, you should look to decrease by at least 1.5% to have the desired money-saving effect. 

Home Equity

Refinancing is an option during the earlier phase of your mortgage, but the later into the schedule you are, the less likely you are to be able to make a saving. At this point, a Home Equity Loan would serve your needs much better.

With a Home Equity Loan, you can borrow money against the equity that has accrued in your property. This type of loan comes with its own schedule of repayments and would allow you to put the borrowed sum directly to use for the construction plans you have in mind.

This is particularly useful if you have a large-scale project with constant work going on. Having a lump sum available for works means they can continue unabated and you can start to benefit from the additional value the works bring to your property.

Construction Mortgages

In general, a construction mortgage is designed to support people who are building their home from scratch. They differ from domestic mortgages in both their structure and the rigor taken by lenders during the assessment phase. Installments of the loan are then issued to the borrower at key stages through the building process.

Some lenders offer a variant of this type of loan for specific construction work. Additional buildings on your land for example. This loan is closer to a standard loan in structure as it does not build upon your existing circumstances, though in some situations you may be required to offer a guarantee against the loan. These kinds of conditions vary from product to product, as do the schedule length and interest rates.

Finding What Works

What’s clear when you start to investigate any of these options is that the variety of products is huge and that the criteria within them also vary greatly. It can become dispiriting having to plow through brochure after brochure, website after website, to try and find that elusive product that gives you what you need.

At Canadalend.com all our advisors are independent experts. Unlike other institutions, we don’t incentivize them to recommend products that aren’t right for you. Instead, they use their years of experience to find the best product for you from thousands of potential lenders.

Contact Canadalend.com today to find out how much time and money you could save.

As with any major financial decision, a home equity loan should not be rushed into without forethought and consideration. Once that’s been undertaken you need to be inquisitive with potential lenders to ensure that the product you are getting will meet your needs and your expectations. A good lender will always allow you the comfort of asking as many questions as you want. 

When it comes to finances there are rarely any stupid questions, only people that don’t ask questions.

Q1 What Will It Cost?

This might seem like a straightforward question, but it’s designed to help you assess not just the value of a loan, but what it will actually cost long term. You may be borrowing $125,000 but it costs you more than that across the term as interest will be charged on the principal debt on a monthly basis. That means the true cost is more than $125,000 and is dependent on the interest rate you agree.

This is especially important when taking out a loan to consolidate debt, will the lifetime cost of your debt be improved through consolidation?

Q2 How Long Will It Take To Repay?

The length of time a loan is set to be paid over is called a schedule and it’s one of the key factors in a loan that can vary, along with the amount loaned and the interest rate.

Shorter loans may have higher rates of interest, but longer loans may allow you to overpay from your monthly budget, ensuring more money goes towards your principal debt rather than the interest on that debt. 

In general, a home equity loan will have a schedule of between 5 and 15 years. 

Q3 What Fees Are Involved?

While a longer scheduled loan may enable you to overpay, you’ll want to know if there are fees for this in advance. Or fees for closing the debt early. Or closing fees at the end of the schedule. Or… well, you get the picture.

Make sure you’re clear about what actions you might take with your loan, such as overpayments or closing early, and whether you will be penalised to do so. While the documentation associated with a loan is detailed, and can sometimes seem impenetrable, you can search electronic versions for keywords such as fee, charge, levy or payment to see what you might be liable to pay.

Q4 Can I Get A Home Equity Loan With Bad Credit?

There’s no straight answer on whether you can as every person’s situation is different. You may have bad credit due to historic factors while your current debt-to-income ratio is good. Or, you may have a larger than normal amount of equity in your property, though most lenders set an upper limit of 80% equity to borrow against. Discussing these factors with a lender prior to settling on a product is essential.

The majority of lenders set a threshold for credit scores at around 600 for automatic consideration of a home equity loan. At the least, a lower credit score will probably mean you face a slightly higher interest rate on your loan rather than impediments to getting the loan.

Q5 Will A Loan Like This Meet The Needs I Have For The Money?

There are many reasons why people take out loans, including home equity loans, and not every type of loan matches every type of need. 

As much as this is an important question for you to ask of a lender, you also need to be clear on why you want the money and what your plans are for repayments. Lenders have been known to use the reasons for wanting a loan as a deciding factor in assigning a loan, so make sure you can explain how you'll use the money and how you intend to manage the debt.

Who Should You Ask?

The experts at Canadalend.com are independent experts. This means that they can give you knowledgeable advice and guidance prior to taking on a new financial commitment, but it also gives them freedom. Freedom to work with you to find the right product for your financial needs. 

Through Canadalend.com they have access to hundreds of different lenders, and a plethora of available products, such as home equity loans, that can meet your needs in a manageable and appropriate way.

To find out more, contact Canadalend.com today and start asking questions about your options for borrowing.

In 2018, Canadian homeowners had an average of 75% home equity available to them. Little surprise then that one-in-ten decided to take advantage with a home equity loan, up from 9% the year before. With the average Canadian home equity loan valued at $75,000, Canadian homeowners are increasingly taking advantage of the available cash tied up in their property. 

Renovating and Repairing Your Home

Using equity tied up in your home to improve the overall value of your home is a sensible way to invest in your own future. The most direct way to increase the value of your property is to renovate it periodically and keep on top of any required repairs.

A standard kitchen refit can add over 70% of the cost to the value of your home, as can upgrading the exterior panelling and features. Energy-efficient renovations, such as the installation of new insulation, provide a trifecta of potential cost benefits; lowering taxes, lowering monthly energy costs and increasing property value.

Investing in New Opportunities

By far the most common reason for taking a home equity loan in Canada is to create further investments or to take advantage of an investment opportunity. 

While the long-term goal of investing is always to get back more than you put in, you need to compare the timeframe of your loan with the expected timeframe of returns from your investment. Where possible, monthly/quarterly/annual returns on your investment are preferable to help with the repayments on your loan. If it’s going to be several years before you see a return from your investment take extra care to ensure that you can accommodate the additional repayments from your monthly budget before you take them on.

Consolidating and Repaying Debt

With the standard Canadian household debt now exceeding 170% of household income, home equity loans have increasingly become a route for consolidating debt under a single arrangement. Providing a better interest rate than the individual loans, debt consolidation gives homeowners more control over their debt. It also allows them to maximize the ratio of their repayments, increasing how much of each payment goes towards the principal debt, rather than interest on that debt.

Defaulting on a mortgage risks the loss of that property. Using the equity tied up within it to help get your finances in order, so that never happens, is a sensible option to protect your assets. 

Buying a Second Property

A second property can have many benefits, not least of which is the opportunity to open up a new line of monthly income. 

Buying a second property with the explicit intention of renting it out long-term can provide enough monthly income to cover repayments on the initial loan. It’s always worth considering in advance what additional hidden fees there might be with becoming a landlord. Whether you go down the traditional private renting route or a more modern option such as Air BnB, there can be additional costs such as insurance and tax status changes to be mindful of.

When Not To Take A Home Equity Loan

While the reasons given here are some of the most common, and the most beneficial to your personal finances, there are of course many reasons that people take out home equity loans that aren’t as beneficial. The two we see most often are luxury items that will depreciate in value and, conversely, everyday expenses such as groceries, gas, utilities and bills.

Taking a home equity loan out to pay for a luxury holiday, buy expensive clothes or the latest technology removes value from your home and places it in something that won’t grow that value. If your budget doesn’t stretch to paying for groceries and utilities, a home equity loan isn’t going to fix that (unless it’s used to free up monthly cash by restructuring debt.)

Getting a Home Equity Loan

Extracting value from the equity in your property and finding effective ways to maximize your use of that cash can sometimes be tricky.

At Canadalend our experts are independent. That means they’re focusing on what is best for you, not what’s best for the bank they work for. The advice they give you, and the products they suggest, are for your benefit, not so they can meet a monthly KPI.

With access to hundreds of different lenders, and a multitude of different products, such as home equity loans, our experts can help you find the product you need to achieve the aims you have for your future financial wellbeing.

To find out more, contact Canadalend.com today and start a conversation about how a home equity loan can improve your future.