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A second mortgage is a way to borrow money by using your first mortgage as collateral. It is a proven and safe way to borrow, and you can potentially access more funds then you could with the average loan. The process tends to involve many of the same details and a similar understanding of a mortgage’s legal framework.

Equity

Equity is the value of a property minus all the debts associated with it. It’s essentially the amount you actually own. In addition, the equity a borrower has in their current property is the most important factor in being approved for a second mortgage.

Your equity can be calculated by following these two easy steps:

• Locate the current market value of your property. Remember, the price you paid might not be the current value.
• Subtract your mortgage balance from that amount.

Your lender essentially wants to know how much you would make if you hypothetically sold the property tomorrow. This number is essentially part of your assets and subtracted from your loan debts.

Property Value

The value of your property is an important factor because it will most likely be used to secure the loan. Since you already have a primary mortgage, there is an additional risk for the lender because they would be second in line to be repaid.

The Approval Process

Getting approved for a second mortgage is like the process you experienced the first time around. You need to meet with a financial institution or lender and fill out an application providing key financial information. Approvals are based on an applicant’s repayment history, overall credit standing and their current home equity.

Starting the Conversation

We recommend sitting down with a lender to discuss the process and to ask any questions you might have. They can also help determine if a second mortgage is the best strategy for your financial needs, or if there’s another option that makes more sense.

Contact us for more information on how to obtain a second mortgage or to set up an appointment where we would be happy to review your situation.

Before applying for a second mortgage, there are different factors you should consider to understand the amount of funds that could be made available. Many individuals do not receive a clear explanation as to how the amounts they are able to borrow are actually calculated. Here is some insight into those figures.

Home Equity

First, the equity of your home plays an important role in their determination. This translates to the variance between its value and what you still owe. It goes without saying, but the smaller the amount you have left to pay on your primary mortgage and the greater the value your home is, the better.

Mortgage Terms

Second, the length of the mortgage term you choose will influence the amount you will be required to pay your lender each month. A longer term is often more manageable because that means smaller payments, but it will take significantly more time to pay off; if you choose to move beforehand, your equity will be less than if you paid higher monthly amounts.

Lender Fees

Mortgage lenders often charge their clients a lending fee, loan origination fees, appraisal costs, as well as a fee to reduce the loan’s interest rate. Since these amounts can all vary from lender to lender, it is important to check with at least a few different institutions to ensure you obtain the best rates and lowest fees. No matter what you decide, experts suggest also getting the amount in writing.

Rates

Like with a primary mortgage, your rate will remain the same throughout the term of your mortgage if you choose a fixed rate. A variable rate will change based on the market and can either work to a borrower’s benefit or detriment. While the fixed rate may seem more secure, you may be able to save significantly if rates decline.

It may be particularly helpful to speak with a financial advisor who can offer some insight based on industry projections. Contact us to learn more about second mortgages and how to determine the amount you may be able to borrow from lenders.

There are many steps involved in buying a home, not the least of which is securing a mortgage. While this is standard for most people as they seek to buy their first home or move to another home, some owners might need to apply for a second mortgage. That means, in most cases, that they want to take out a mortgage on top of the primary mortgage to pay off debts or make a large investment, which can include post-secondary education or starting a new business.

Why Apply for a Second Mortgage?

A second mortgage is also commonly known as a home equity loan. It may seem helpful to have this option to manage complex financial matters, but it is important to not enter this arrangement lightly. For some, despite taking on more debt, it can actually help improve your credit score if you use the money for debt consolidation.

Getting Approved

It may not always be possible to get approval from a financial institution in the first place. The interest rate is usually higher and there are often penalties for defaulting, so experts recommend comparison shopping both of these factors. Still, interest rates on second mortgages are usually lower than credit cards.

Be Prepared for Fees

Each financial institutions or lenders will charge different closing costs and fees. As a result, find out in advance what these parameters are so you can create a repayment plan. Qualifications for a second mortgage are first determined by the value of your home and its equity. Income and credit history are important, but not major factors like they are with most other loan applications—including a primary mortgage.

Value for Borrowers

There is greater freedom with a second mortgage compared to other loans. In fact, borrowers can often negotiate the terms and as much as 85% of your property’s value can factor into the amount you can receive. However, not everyone will provide this option as it is riskier for the lenders. That is because, if you happened to default on your loan payments, your primary mortgage lender would be paid before your second mortgage lender.

If you are considering a second mortgage application, contact us to help you ensure it is the right move.

Why It’s Difficult for Startups to Qualify for a Business Loan

Small businesses are the backbone of the Canadian economy. According to the latest government statistics, 97.9% of employer businesses are small businesses. Despite being the country’s economic engine, the vast majority of startup businesses in Canada find it difficult to secure financing. In fact, the smaller a startup is, the tougher it’s going to be to get a business loan from a traditional lender.

Why is it so difficult for startups to get a business loan? For starters, there’s a lot of paperwork. If you’re looking for a small business loan, the banks will want to see personal financial statements, personal background/history, one-year projection of income, loan application, personal income tax returns for the past three years, a business license, and business plans. It will also take the bank a long time to go through the paperwork, sometimes months. This laborious process is a hurdle and deterrent for many small business startups.

In addition to the loan process, banks could turn down a business loan because of a low credit score, little or no collateral, inconsistent income, and even a history of being late with payments.

This might explain why only a small percentage of small business startups actually have business loans.

A Home Equity Loan for Startup Businesses

If startup businesses aren’t getting their business loans from the bank where are they getting the money? For those who own property, the easiest and quickest way to secure financing for your startup is to refinance your property with a home equity loan.

A home equity loan, often called a second mortgage, is an additional loan taken out on a property you already have a mortgage on. Like a first mortgage, you make monthly payments on the home equity loan.

With a home equity loan, you receive a one-time, lump sum payment. You are charged interest on the total amount as soon as you receive the money, and the home equity loan gets paid off over a predetermined period of time.

Home Equity Loan vs. Business Loan

There are a few reasons why startups should consider a home equity loans over a business loan.

Easily to Get

The fact of the matter is, business loans are difficult to get. There’s the mountain of paperwork, business projections, etc. Home equity loans, because they are secured against the property you already have a mortgage on, are easy to secure. Where traditional lenders want you to fill out a massive pile of paperwork, alternative home equity loan lenders aren’t interested in your business plan or long-term projections, instead, they look at your assets and resources.

Low Interest Rate

Moreover, the interest rates charged on home equity loans are usually much lower than those of business loans.

Flexibility

Home equity loans provide startups with a lot more flexibility. Money provided for a business loan from a traditional lender, like a bank or trust company, can come with a large number of conditions, including what the money can be used for. The money you secure with a home equity loan can be used for anything.

FAQ about Startup Business Financing

Do banks give loans to start a business?

Traditional lenders all provide business loans for startups. They just aren’t easy to get. There’s paperwork to fill out, financial statements, projections etc. You also need a high credit score, steady income stream, and collateral.

Some banks will also only provide a business loan to startups that have been in business for at least a year and generate monthly revenue of $20,000+. The interest rate on business loans can also be very high and there are restrictions on what you can use the money from the business loan on.

Startups are, by the very definition, in the early stages of operation, and most small business owners do not have the time or money to jump through all of the hoops that banks make them do.

Can I get a business loan without collateral?

Banks and other traditional lenders insist that startups have collateral. Over the last number of years, big banks have become risk averse and implemented a number of strict lending policies. If the collateral isn’t enough, the bank will turn your business loan application down.

Alternative lenders on the other hand use the collateral you’ve built up in your home to secure a business loan. The more collateral you’ve built up, the bigger the loan will be. Because you already own the home and were approved for the first mortgage, the chances of being turned down for a home equity loan are remote.

Can I use a home equity loan to buy a business?

Yes. One of the biggest benefits of a startup business owner taking out a home equity loan, is that it is s a personal loan, there are no restrictions. The money can be used for anything and everything: business or pleasure.

That can’t be said for a business loan. There are many drawbacks to using a bank to take out a business loan. One of them, is the restrictions associated with the loan. Namely, the money from a business loan can only be used to run the business.

If, for some reason, you are hit with an unexpected personal expense that keeps you away from your business, you cannot use the business loan. And your business could suffer.
Banks dictate how you can use their business loan. With a home equity loan, the money is yours to do with as you please.

Canadalend.com, Helping Canadians Secure Home Equity Loans

If you’re a small business owner or are looking to start or buy a business, the licensed mortgage experts at Canadalend.com can show you the benefits of home equity financing.

The mortgage professionals at Canadalend.com are independent, which means they have access to hundreds of different lenders. Many of whom specialize in helping entrepreneurs refinance their homes to start a business. There are also lenders who are dedicated to helping those with bad credit, no credit, and unreliable income secure a home equity loan.

To see what kind of home equity loan 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.