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When you need money, look at your home to help you get a loan. Using the equity or appreciation of your home can be a great way to get the cash you need at interest rates that are often better than credit cards or personal loans.

Two types of loans worth considering are home equity loans and cash-out refinancing.

These are excellent tools, and each works best in specific circumstances. This article will define each of these methods, examine the primary differences between them, and assess their pros and cons.

What Is a Home Equity Loan?

First and foremost, we need to define what a home equity loan is. A home equity loan allows homeowners like yourself to borrow against the equity you have built up in your property.

Simply, it means that you can access your home's equity before selling it. The great thing about a home equity loan is that you can use the cash for anything you want. People often use this money for renovations, debt consolidation, or emergency funds.

There is even a chance that the interest paid on your loan is tax-deductible; depending on your specific circumstances, you may be able to write off the interest on the loan if you use the money for home improvements.

Since you're taking out a second mortgage, you should know that the interest rates can be higher than your first mortgage, but that is still not certain.

What is a Cash-Out Refinance?

A cash-out refinance is another way to access the equity built up in your home. In this method, you will replace your existing mortgage with a larger one. By doing this, you're taking out a loan based on your home's increase in value.

However much your home has appreciated, that's the cash you get. Just like a home equity loan, you can use the money you get for anything you like.

You can opt for a fixed or adjustable interest rate when you refinance. This choice can allow you to have some say in what your mortgage looks like. Refinancing your home can offer lower interest rates than other borrowing options, such as personal loans or credit cards.

Since you have increased your mortgage, you should be mindful that your monthly payments will increase.

Primary Differences

The primary and noticeable difference between a home equity loan and a cash-out refinance is what happens to your first primary mortgage. With a home equity loan, your first mortgage remains unchanged. With a cash-out refinance, you can get a new mortgage and reap certain benefits, such as extending the repayment term.

The closing costs of a home equity loan are typically lower than cash-out refinancing. As we mentioned, the interest on your home equity loan might be tax-deductible.

Experts state that a home equity loan is better for specific and minor expenses.

Cash-out refinancing typically comes with lower interest rates than a home equity loan. As well, this method can be better for getting more money. Of course, this depends on several factors, such as the equity you have in your home and interest rates.

Pros and Cons

Benefits of Cash-Out Refinancing

As mentioned, cash-out refinancing often comes with lower interest rates than home equity loans. In addition, because your home has likely increased in value, cash-out refinancing typically allows you to access a more considerable amount of money.

Potential Drawbacks of Cash-Out Refinancing

If you extend the term of your new mortgage, you risk paying more interest over the loan's lifetime. Furthermore, because cash-out refinancing allows you to access more money doesn't mean you necessarily need that money, and you can overborrow.

Finally, your interest rate may change over time if you opt for an adjustable-rate mortgage. You may not be interested in taking on that risk, depending on your goals and needs.

Benefits of Home Equity Loans

Home equity loans usually have a fixed interest rate, which lets you know exactly how much your monthly payments are. Also, because it is a loan separate from your existing mortgage, it does not affect the terms of your first mortgage.

We have already mentioned the potential tax benefits and the lower closing costs compared to a cash-out refinance.

Potential Drawbacks of Home Equity Loans

Since you are taking out a second mortgage on your home, that loan will usually have a higher interest rate than your first mortgage.

Also, the amount of money you can borrow is determined by the amount of equity you own in your home. You should consider why you need the money and if you own enough equity to consider a home equity loan.

Which is Better For You?

Of course, there's much to consider when deciding between a home equity loan and a cash-out refinance. It can take time to determine the correct path forward. You must look critically at your financial situation, goals, and needs. In this article, we have outlined a few considerations for this decision.

Consider how much money you need, what kind of repayment you can, and if you want to make any changes to your first mortgage. There is much more to consider, and you should seek a professional's advice.

Getting sound and trustworthy advice is always recommended. We are a friendly team of licensed professionals who genuinely want to help you find the best loan. We are confident in our service and are proud to offer 24-hour approvals and even a free personal consultation to get you started.

For more information about home equity loans and cash-out refinancing, call Canadalend at 1-844-586-0713 or contact us here.

You probably have lots of ideas for what you could do if you had more money to spend. You could renovate your home, pay off high-interest loans, plan for retirement, invest, or do anything else.

Looking at the equity you have built in your home is a common way to get the cash you need. Second mortgages are a fantastic option for many people, and this article will help you better understand how a second mortgage can be right for you.

Like with all mortgages, there is a lot to consider. We want you to understand what a second mortgage is, how it differs from your first mortgage, when you should (and should not) consider a second mortgage, and how to assess your eligibility.

1. Understanding Second Mortgages

Understanding a great deal about obtaining a second mortgage is important, and this article is an excellent place to start.

You should know that a second mortgage differs from your first mortgage and when you should/should not begin a second mortgage. We will also introduce you to some common concepts that we use when discussing a second mortgage.

Second mortgages are just that, a second loan taken out against the equity in your home on top of your pre-existing mortgage. It is a way to access the equity you have built in your home and borrow money to invest, consolidate your debt, or save in an emergency fund.

At the outset, an essential thing you should understand about second mortgages is that they typically hold a subordinate position to your first mortgage. This facet means that the repayment priority goes to your first lender.

Second mortgages often come with higher interest rates (but that is not guaranteed). They are a great option in certain circumstances, but only on some occasions, so it's essential to know the specific use cases where a second mortgage is best for you.

2. Difference From Your First Mortgage

Your first mortgage is the primary loan you used to purchase your home or property. These mortgages often have a repayment period of 15 to 30 years. To repay the loan used in the purchase, you pay a monthly fee that covers both the principal and the interest.

Second mortgages usually have a shorter repayment (especially compared to your first mortgage). Rather than the borrowed amount being used for the entire purchase price of the property, the amount you can borrow is dictated by the amount of equity you have. To learn more about second mortgages, you can read our article here.

The main difference between a first and second mortgage is the purpose of the loan. A first mortgage is a loan for purchasing your property. In contrast, a second mortgage allows you to extract some of the equity in your home to put towards anything you like.

Since these are two separate mortgages, you will have to manage two separate monthly payments, so it's worth considering if you can do that beforehand.

3. Know When (And When Not) to Get a Second Mortgage

Depending on your circumstances, a second mortgage could be an excellent decision. Second mortgages are a great way to get money for investments, debt consolidation, home improvements, emergency funds, planning for retirement, or anything else you may need.

One of the great things about a second mortgage is that you can do anything with the money. While there is potential for lower interest rates than other types of loans, second mortgages are based on your credit score, equity in your home, and other variable factors.

Two primary types of second mortgages are a Home Equity Loan and a Home Equity Line of Credit (HELOC). These two methods offer flexibility in how you receive money from the equity you have in your home. A Home Equity Loan is a one-time lump sum payment.

A Home Equity Line of Credit allows you to take out the money as you need, and as you pay it off, you can borrow more money (up to the limit), much like a credit card.

Of course, you need to understand that the interest rates on your second mortgage will likely be higher than your first mortgage. You must also manage two mortgage payments instead of the original one. Therefore, before taking out a second mortgage, you should seriously consider the pros and cons of repayment.

4. Eligibility

To be eligible for a second mortgage, you must meet your lender's requirements. These usually include the lender looking at your credit score (the higher, the better), the equity you hold in your home (also the higher, the better), and your Loan To Value (LTV) Ratio (the ratio between your mortgage amount and the appraised value of your property).

Canadalend has access to Canadian banks, credit unions, and other lenders, so we can ensure you get the best and most competitive rates on the market. Our friendly and professional agents thoroughly understand all products, rates, and features of the financial tools available to you.

5. Seek Professional Advice

Creating a second mortgage can be a great way to get the money you need. Yet, you must carefully consider all variables to ensure this is your right choice. We have already discussed some of a second mortgage's pros, cons, and complexities. What you need is professional guidance from people you trust.

We are committed to finding you the best home equity loan to fit your needs. We offer great rates and 24-hour approvals. Our team of licensed mortgage professionals will help you every step of the way- even offering you a free personal consultation.

For more information about second mortgages (and alternatives), call Canadalend at 1-844-586-0713 or contact us here.

You probably have lots of ideas for what you could do if you had more money to spend. You could renovate your home, pay off high-interest loans, plan for retirement, invest, or do anything else.

Looking at the equity you have built in your home is a common way to get the cash you need. Second mortgages are a fantastic option for many people, and this article will help you better understand how a second mortgage can be right for you.

Like with all mortgages, there is a lot to consider. We want you to understand what a second mortgage is, how it differs from your first mortgage, when you should (and should not) consider a second mortgage, and how to assess your eligibility.

1. Understanding Second Mortgages

Understanding a great deal about obtaining a second mortgage is important, and this article is an excellent place to start.

You should know that a second mortgage differs from your first mortgage and when you should/should not begin a second mortgage. We will also introduce you to some common concepts that we use when discussing a second mortgage.

Second mortgages are just that, a second loan taken out against the equity in your home on top of your pre-existing mortgage. It is a way to access the equity you have built in your home and borrow money to invest, consolidate your debt, or save in an emergency fund.

At the outset, an essential thing you should understand about second mortgages is that they typically hold a subordinate position to your first mortgage. This facet means that the repayment priority goes to your first lender.

Second mortgages often come with higher interest rates (but that is not guaranteed). They are a great option in certain circumstances, but only on some occasions, so it's essential to know the specific use cases where a second mortgage is best for you.

2. Difference From Your First Mortgage

Your first mortgage is the primary loan you used to purchase your home or property. These mortgages often have a repayment period of 15 to 30 years. To repay the loan used in the purchase, you pay a monthly fee that covers both the principal and the interest.

Second mortgages usually have a shorter repayment (especially compared to your first mortgage). Rather than the borrowed amount being used for the entire purchase price of the property, the amount you can borrow is dictated by the amount of equity you have. To learn more about second mortgages, you can read our article here.

The main difference between a first and second mortgage is the purpose of the loan. A first mortgage is a loan for purchasing your property. In contrast, a second mortgage allows you to extract some of the equity in your home to put towards anything you like.

Since these are two separate mortgages, you will have to manage two separate monthly payments, so it's worth considering if you can do that beforehand.

3. Know When (And When Not) to Get a Second Mortgage

Depending on your circumstances, a second mortgage could be an excellent decision. Second mortgages are a great way to get money for investments, debt consolidation, home improvements, emergency funds, planning for retirement, or anything else you may need.

One of the great things about a second mortgage is that you can do anything with the money. While there is potential for lower interest rates than other types of loans, second mortgages are based on your credit score, equity in your home, and other variable factors.

Two primary types of second mortgages are a Home Equity Loan and a Home Equity Line of Credit (HELOC). These two methods offer flexibility in how you receive money from the equity you have in your home. A Home Equity Loan is a one-time lump sum payment.

A Home Equity Line of Credit allows you to take out the money as you need, and as you pay it off, you can borrow more money (up to the limit), much like a credit card.

Of course, you need to understand that the interest rates on your second mortgage will likely be higher than your first mortgage. You must also manage two mortgage payments instead of the original one. Therefore, before taking out a second mortgage, you should seriously consider the pros and cons of repayment.

4. Eligibility

To be eligible for a second mortgage, you must meet your lender's requirements. These usually include the lender looking at your credit score (the higher, the better), the equity you hold in your home (also the higher, the better), and your Loan To Value (LTV) Ratio (the ratio between your mortgage amount and the appraised value of your property).

Canadalend has access to Canadian banks, credit unions, and other lenders, so we can ensure you get the best and most competitive rates on the market. Our friendly and professional agents thoroughly understand all products, rates, and features of the financial tools available to you.

5. Seek Professional Advice

Creating a second mortgage can be a great way to get the money you need. Yet, you must carefully consider all variables to ensure this is your right choice. We have already discussed some of a second mortgage's pros, cons, and complexities. What you need is professional guidance from people you trust.

We are committed to finding you the best home equity loan to fit your needs. We offer great rates and 24-hour approvals. Our team of licensed mortgage professionals will help you every step of the way- even offering you a free personal consultation.

For more information about second mortgages (and alternatives), call Canadalend at 1-844-586-0713 or contact us here.

You could consider taking out a second mortgage in Canada for many reasons. You can buy a summer home or expand your real estate portfolio. Whatever the case, learning about the stipulations of getting a second mortgage is essential. 

As you will find out in this article, taking out a second mortgage differs significantly from a primary mortgage loan transaction. This guide will lay down all the facts to help you make the best decision. 

What Exactly is a Second Mortgage?

Taking out a second mortgage means applying for a second loan on a mortgaged property. A second mortgage usually counts as a home equity loan for another residence or a home equity line of credit (HELOC) on an existing property. 

Simply put, you can use a second mortgage to buy another home or cash out the equity you have in your existing home to pay for something else. Typically, homeowners take out a second mortgage for the following reasons:

• Consolidate their existing debts

• Afford significant home improvement purchases

• Fund a down payment for a second home

If you take out a second mortgage, your lender will likely raise your interest rate and lower your borrowing amount compared to your existing mortgage. 

What Are the Different Types of Second Mortgages?

Again, you can get a second mortgage as a HELOC. The usual conditions are having good credit, an existing mortgage, and at least 20% equity in your primary residence. If you meet these prerequisites, your lender will extend a loan you can use when needed. 

You can take out a second mortgage as a HELOC to pay down existing credit card debt, buy a restaurant, or even pay off your student loans. A HELOC is the most common type of second mortgage, and many lenders across Canada provide this option to homeowners. 

Remember that your interest rate can hover between 2.5 – 3%, and you must pay the money back according to the terms set by the lender. In this instance, think of a second mortgage like a credit card.

The next type of second mortgage is called a home equity loan. When you take out a home equity loan, you'll essentially agree to pay the money back in monthly instalments, just like your primary mortgage. 

Home equity loans are widely accessible to homeowners, even with poor credit or little home equity. However, the downside is that private lenders usually finance these loans at very high-interest rates, between 10 to 15%.

Both types of second mortgages use your home's equity as collateral if you default on the loan. It means your lender could repossess your home if you don't pay back the money you owe. 

Why Take Out a Second Mortgage?

You can use a second mortgage to fund any significant purchase within the terms of your loan. Still, here are the four most common reasons why people seek to take out a second mortgage:

1. Debt Consolidation: Due to its high borrowing amount, you can use a second mortgage loan to consolidate and pay off your debts. You can lump together high-interest debts like credit cards and student loans to pay them all off with moderate interest.

2. Major Home Purchases: If you want to remodel your home, you can use a second mortgage loan to fund the project. It's essential to ensure that your home's value exceeds the money you're borrowing to make a profit.

3. Starting a Business: Applying for a second mortgage loan is usually the easiest way to start a business. Many lenders will even give you generous term conditions that will allow you to repay the loan when you start making a profit.

4. Purchasing a Second Home: Finally, you can use a second mortgage to fund a down payment for a second home. Most of the time, a down payment is 20% of a home's total value. Once approved, you'll repay the loan in monthly instalments plus interest. 

How Much Can I Borrow with a Second Mortgage?

According to the Canadian government, you can borrow up to 80% of the total value of your home once you subtract the current balance on your first mortgage. For example, if you own a home worth 200,000 CAD, you could borrow up to 160,000 CAD on your second mortgage. 

Nonetheless, the average borrowing limit for second mortgages for a HELOC is 150,000 CAD. You can bypass this amount by borrowing from a private lender. However, expect to pay a high-interest rate if you choose that option. 

How to Qualify for a Second Mortgage

While every lender is different, all of them will assess your financial worthiness using the three following criteria:

1. Equity: The total amount of money you've already paid on your mortgage loan. It's simply the percentage of the home you own. The more equity you have, the more collateral you can use toward your second mortgage. Generally, you can qualify for a home equity loan with under 20% equity. You can qualify for a HELOC if your equity is above 20%.

2. Income: Your lender will assess your income to ensure you can keep up with the payments of your additional mortgage. Debt will also play a factor here since the lender wants to ensure you can manage new debt on top of your primary mortgage.

3. Credit: If you have a credit score of at least 650, you can qualify for a second mortgage. The better your credit, the lower your interest rate will be.

Get Help with Home Equity Loans with Canadalend

As you can see, taking out a second mortgage can be used to make emergency payments or fund a significant purchase whenever needed. Depending on your lender, you can apply for a home equity loan with favourable terms that will give you peace of mind.

If you're ready to explore your options, the friendly team at Canadalend will help you choose a suitable lender. 

To learn more about our home equity loan solutions, call Canadalend.com at 1-866-I CAN LEND or contact us here.