Will You Take a Second Mortgage?

General Faizal Garasia 3 Apr

Owning your own home is not easy as you think. There are so many things to attend to like completion of various government permits, payment of initial down payment, securing property insurance, etc., and contract(s) to sign like mortgage loan, contractor’s agreement, and miscellaneous clearances, to name a few.

If this is not enough, you also have to contend with credit score, credit investigation, and lender approval. The third one – lender approval – is what you must give priority to because this determines whether or not you will receive your loanable amount.

Once you succeed in getting approved for a mortgage loan, you can now proceed in either purchasing a house or building a new one. In some cases, a number of home owners will eventually resort to having a second mortgage to fund their initial mortgage.

How does this work and will it benefit the home owners in the long run?

In this blog, we will talk about second mortgage and how you can apply for one.

Dive in when you are ready…

Second Mortgage Defined

A second mortgage – also referred to as a second trust lien – is a loan type using your house as collateral. As such, a second mortgage commands a lower interest rate but with one caveat: this will call for additional service charges plus terminating costs that you will have to deal with.

Moreover, this type of loan takes on “second priority” in case you default on your initial mortgage amortization payments. If and when this happens, you will have to settle initially your first mortgage in full before payment to your second mortgage takes place.

You may find that a second mortgage appears to be more of a burden than a blessing but this is not always the case. Maybe if your credit score is wanting in positive remarks then getting a second mortgage could be a plan worth thinking about.

However, if you do not have any issues regarding your credit standing and you are not a risk to any lender then taking one can be good since you can consider this as a home buyer incentive.

Advantages and Disadvantages of Second Mortgage

If you are having plans in acquiring a second mortgage then it is best that you get informed of its advantages and disadvantages. The following are the benefits of getting one:

a. Loan amount – you can borrow up to a maximum of 85% of your property’s value depending on your lender. This value comprises all of your house loans including first and second mortgages, respectively.

b. Interest rates – second mortgage commands a lower rate of interest on your debt compared to conventional/traditional loans like credit cards.

c. Tax benefits – you can avail of a special deduction every time you pay interest on your second mortgage. We suggest seeking advice from a tax professional for more information regarding this perk.

The following, on the other hand, are the drawbacks of acquiring a second mortgage:

a. Risk of foreclosure – since your house is tendered as collateral, you face the risk of losing your property if you default on your monthly payments.

b. Loan costs – getting a second mortgage accompanies a number of costs and additional expenses that you need to settle prior to (and even after) the consummation of the contract.

c. Interest costs – while it is true that your second mortgage has lower interest rates, the interest costs incurred will be slightly higher compared to your first mortgage loan.

Regardless of the advantages and disadvantages presented, a second mortgage will continue to appeal to new home buyers like you most especially if you have plans on adding a complementary feature or in renovating a particular room/section inside your house.

Application of Second Mortgage

There are a number of uses for second mortgages and none of them are limited to any particular application like car loan, insurance loan, etc. These are as follows:

a. Home improvements – this refers to renovations. You have to sell your house at a higher price in order to settle your loan.

b. Avoiding PMI – private mortgage insurance can be avoided with a merger of loans and one method, in particular, is called the “piggyback strategy”. One example of this is the term “80/10/10” which indicates your initial mortgage’s loan-to-value ratio has to be at least 80% or lower in conjunction with your second mortgage.

c. Debt consolidation – you run the risk of losing your house when using a second mortgage as your means of paying off your other outstanding obligations. Since your property is on collateral, skipping on your monthly payments will automatically foreclose your home.

d. Education – this needs further scrutiny. There is nothing wrong in spending money on education but there are other much better options for this endeavor. We advise increasing your income opportunities instead of increasing your chances of foreclosing your property.

Do not rush yourself yet in applying for a second mortgage if your reason is any of the above. What you can do initially is conduct thorough research about other means of raising money to give you the
additional funds you badly need. You can also approach your nearest credit bureau and apply for a special government of Canada first time home buyers loan, if possible.

Additional Notes on Second Mortgage

You have to have the best sources to support your second mortgage bid should you decide to pursue this route. We can mention three of them and they are:

1. Local bank(s) or credit union(s)
2. Mortgage broker(s)
3. Online lender(s) – be wary of this one since there are many scammers on the internet.

Final Thoughts

Applying for a second mortgage is good for you. Although this may cause your property’s value to decrease, you have complete control over your finances since you will generally have only one lender to deal with.

Unlike other types of loans, your second mortgage can be placed with the same lender when you applied for your first mortgage.

Several uses can be derived from your second mortgage and all of them are unlimited in their scope. However, you stand the risk of property foreclosure if you become delinquent in skipping repayments on your loan.

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We are your trusted mortgage solutions experts based in Canada founded by Faizal Garasia in 2019. We have access to more than 90 lenders including the largest banks, credit unions, trust firms, and financial institutions across Canada.

We help you understand and resolve issues regarding mortgages, finances, taxes, and other loan-related payments that impact your real estate plans.

Is Hybrid Mortgage Worthless Or Not?

General Faizal Garasia 9 Nov

Summery

Are you the type of person who just sticks with one plan and go along with it or one of the many that struggles with what to choose? Or are you the type of person from a few who chooses both, diversifies financial possessions, and puts your eggs in different baskets?

As hybrid mortgage products become more and more popular among borrowers, lenders, banks, mortgage brokers, and financial institutions, should we even consider getting one, or is it worthless based on our preference? Here are some pieces of information that could be beneficial on your mortgage journey.

Fixed Prime Rates

This mortgage product refers to a long term fixed rate and fixed monthly payments for the entire life of the loan. Borrowers are unaffected by the impacts of interest rate fluctuations.

Borrowers would not have to worry about the changes, the fluctuation of interest rates and mortgage payments as they are fully aware of the stability of a fixed-rate mortgage.

Variable Interest Rates

This mortgage product refers to a type of home loan which does not have a fixed interest rate for a period of time. The interest rate in this type of product may go up or down depending on the market situation.

When the rate increases, your payments will be allocated more on the interest portion while when rates decrease, your payments will be allocated more on your principal amount portion.

Hybrid Home Loan

Fixed-period ARM, Hybrid Adjustable Rate Mortgage, Hybrid ARM, or commonly known as Hybrid Mortgage allows you to split your mortgage term within your preferred number of years.

Your Choice

Choosing a hybrid product, you could put half of your mortgage term in a fixed interest rate while the other half is for your variable rate mortgage resulting in a combined type of mortgage rate portion within a scheduled term.

Mix and Match

Most of the time, hybrid mortgage products do not necessarily require a 50/50 mortgage portion. Usually, some of them are personalized and let you incorporate contract lengths as you want.

For instance, you could put one-third in a long variable rate and two-thirds in a short term. You could merge and combine your hybrid home loan as you see fit with certain banks, lenders, mortgage brokers, credit unions, and financial institutions.

Safe Zone

The hybrid mortgage’s sole purpose is to elude and avoid your exposure to unanticipated sudden interest-rate fluctuations and swings.

If variable rates spike up, you’ll feel less financial damage when you allocated half of your term in a long term fixed rate rather than having it on the entirely variable or shorter term. On the other hand, if rates dropped drastically, you will still enjoy the part and benefit of being in the safe zone.

Is It Good For You?

Hybrid mortgage works best for borrowers who indecisive between fixed and variable rates. Someone who is having sleepless nights worrying when interest rates might shoot on an uncertain occurrence. Someone thinking about paying a penalty when there is a possibility for their mortgage to break early. Or when someone has a partner or loved one who has a lower risk tolerance than you.

Final Thoughts

Life has it’s own uncertainties. Achieving a milestone such as becoming a homeowner where you are just starting your mortgage journey, it could be a hard and long one. No one on earth could easily predict where interest rates could go.

When having a hybrid mortgage home loan and taking it into consideration could be a worthwhile financial decision for you and your family in the long run. Regardless of whether interest rates could go up or down, movements matter less or should not matter at all when you are having this mortgage product.

If you are a financially secured borrower and you’ll approach this method with a risk-tolerant attitude, bonded with organized behavior for documents and files required. You’re better off with standard mortgages that offer lower rates but if you’re the opposite, a hybrid mortgage is good to look for – so choose wisely.

Why Mortgage Rates are Getting Low?

General Faizal Garasia 2 Jul

Over the last couple of months, mortgage rates have been tumbling steadily, brokers are giving discounts for certain 1-to-5-year fixed rates. Some mortgage rates are as low as under 2%.

The concern of COVID-19 second wave has caused Canada’s 5-year bond yield to fall to its own record low, which is pulling down fixed mortgage rates.

HSBC started the trend when they announced the 5-year fixed default an insured mortgage for 1.99%.

Several brokers now are offering 5-year fixed rates from 1.98% and even lower.

What makes The Mortgage Rates so Low?

There are a numbers of factors:
1. Investors are concerned that the second wave of COVID-19 would hamper an economic recovery caused by bonds.
2. Bank of Canada’s $5 billion weekly government bonds purchase continued to gain lender’s confidence that the market will remain sustainable and allowing them to offer lower rates as funding cost fall.
3. Fixed and variable rates are likely to remain at or below their current levels

Does it Make sense breaking your current mortgage for a low rate?

While these rock-bottom rates are good news for new homebuyers, on the other hand, it is somewhat a source of frustration for borrowers who are currently locked in at much higher rates.

The Strategy is not for everyone, it might be worth if you are currently locked in at a much higher interest rate. If you wanted to know more about it, you may check with us who could easily do the calculations to see if breaking your mortgage makes sense.

How to find a mortgage agency that works for you ?

Mortgage Tips Faizal Garasia 20 Sep

Each one of us goes through different dilemmas, especially when it comes to the decision of buying our first home. We ask ourselves if we are ready to face this new and big responsibility. While in the shower, we think about how we could pay a home mortgage for years. Before sleeping at night, the thought of signing a contract for your own home keeps coming in your mind.

In one way or another, all first-time buyers have all been there. We doubt ourselves and our capacity to achieve our dream home. We even ponder if we should wait for additional months to save in order to pay a substantial down payment. But whether you like it or not, you eventually have to make a decision. To help you in that aspect, we listed four things you can do to find the best mortgage agency for you.

Ask family and friends who had a successful homebuying journey to about their mortgage agency

If you do not know any credible mortgage agencies, you can ask your family and friends who have purchased a home to recommend the lending institutions they have worked with. Let them share their experiences and how they dealt with it. With that, you’ll have an idea on what to do and identify potential lenders.

Explore and compare all the mortgage agencies you can find

Do not immediately choose the lenders that your family and friends referred to you! Explore other mortgage agencies. Compare their rates, services, and the deals that they offer.

You can start your search for lenders online. Most agencies have a website and any other social media accounts that are easy to go through and contact. Ask for a mortgage quote from all of them. You can even use a mortgage calculator to compute your possible mortgage rates. Once you have all the quotes you got from them, compare their prices, and identify those that provide affordable rates and flexible terms for you. You can also personally visit potential mortgage houses. Get a feel of how their mortgage brokers and mortgage specialists manage their clients.

Prepare your credit report, proof of income, and other documents that lending institutions require

Three main requirements for you to get a mortgage is a good credit standing, evidence of a stable stream of income, and low debt to income ratio. If you want to gain an advantage in the negotiation of your mortgage, you have to make sure that you pass the standards of the three requirements.

A bad credit standing may still enable you to take out a loan, but you will be at a disadvantaged position. You can have your credit fixed first before applying for a mortgage. This way, you can bargain on your mortgage deal. You also have to make sure you have a steady source of income. This is to assure your lender that you can pay for your mortgage. Lastly, you have to have a low debt to income ratio. Having such would project a good image for you to your lenders.

Do not be afraid to ask questions!

Finally, do not be afraid to ask questions! If you have doubts, ask to be clarified. If you don’t understand how they computed their mortgage quote, ask them to explain it to you.

4 Key Things You Need To Know About A Second Mortgage

General Faizal Garasia 6 Jul

Most homeowners are vaguely aware that you can take out a second loan on your home. Perhaps a family member close to you has gone through the process or maybe you hear your friends mention it. But do you truly know what it means to take out a second mortgage? We have taken all the questions commonly asked about second mortgages and compiled them into four key points.

A Second Mortgage is Based on the Equity In Your Home

The second mortgage lender will offer you the total loan amount depending on the equity that has been built up in your home. You can access up to 95% of the equity you have in your property when you get a second mortgage. For example:

House Value $850,000
95% LTV (maximum mortgage amount) $807,500.00
First Mortgage $550,000.00
Amount Available Through Second $257,500.00

Interest Rates Will Vary and Be Higher Than Your First Mortgage

When a lender agrees to a second mortgage, they are taking a higher risk because he gets second priority in case of default. However, we have options and solutions such as working with private lenders. This can help you obtain a reduced rate and the right product for your mortgage situation. You can expect an interest rate of 6.95%-19.95%, this includes lender and broker fees.

Your Payment Can Be As Low As Interest Only Payments

One of the benefits of selecting to use a second mortgage is the fact that the payments are attractive. You can select to pay the interest plus the principal loan amount or you can choose interest-only payments. Contact us to work with a mortgage broker in Canada to discuss options and what would work best with your situation.

There Are Additional Fees To Consider

It is important to know that setting up a second mortgage will require you to pay fees. To help you understand ALL the fees associated: *note dollar amounts are approximations.

An appraisal fee to assess the value of your home: $300
Legal fees to set it up: $2,000
Lenders & Broker fees: 1-5%

Second mortgages are a great option for many. This may also be a better solution than to refinance or a Home Equity Loan (HELOC). If you are interested in learning more or if you need a second mortgage in Canada, talk to us. We can guarantee that we will guide you in the process from start to finish!

Job Market is Tight, Does it Lead to Wage Growth?

General Faizal Garasia 6 Jul

December 2018 shows modest job gains and an unemployment rate that remains at a record-low 5.6%, according to Statistics Canada’s updated Labour Force Survey. There is a minor increase from the prior month, 9,300 new jobs were generated in December.

However, economists’ expectations of 5,500 jobs and a jobless rate of 5.7% have been beaten by December’s rise. This is a general sign of weakness because all of the warm increase last month was in part-time and self-employment. Wages remained idle and full-time work fell in December for the first time in three months.

The Increase in Employment

Employment increased in Newfoundland and Labrador, while it dropped in Alberta, New Brunswick, and Prince Edward Island in December. In other provinces, there was a little change in new jobs. They recorded increases in manufacturing, transportation, and warehousing, as well as in health care and social assistance. In wholesale and retail trade, there were job losses, especially in the Ontario province.

The economy added 163,300 jobs for all of 2018, all of them full-time, for a 0.9% increase representing a significant slowdown from the pace of job growth in 2017 when the economy was much stronger. In 2017, employment was raised by an out-sized 427,300 and has average annualized gains of 225,000 workers since 2010.

The Dropping Unemployment Rate

It is not surprising that labor shortages are emerging and businesses are having trouble filling job openings with the unemployment rate dropping to its lowest level since comparable data collection began in January 1976. The warm pace of wage growth is surprising. December’s wage growth reading was a weak 1.49% annual rate, well below the inflation rate even with the very tight labor market. Decelerating steadily since its May peak of 3.9%, year-over-year average hourly wage growth for permanent workers was only 1.46%.

The Worst Year for Real Estate

The local real estate boards in Canada’s biggest housing markets released data this week showing home sales fell to decade lows in 2018 reflecting higher interest rates and stricter mortgage rules.

In 2018, the sales in the GTA fell 16% while the average price decreased by 4.3% in Toronto. Since the financial crisis in 2008, this is the worst year for sales in Canada’s largest city. Full-year sales fell 32% in Vancouver, the lowest since 2000 and 25% below the 10-year average. Prices for detached homes in Vancouver dropped at least 10%.

Sales dived in the first half of 2018 after the federal government imposed more stringent qualifying rules for mortgages. Sales in Vancouver continued to suffer even while Toronto began to recover in the second half, as the British Columbia government introduced more measures to prevent speculation.

What Is A Refinancing?

General Faizal Garasia 6 Jul

People understand what refinancing a home is but they have trouble explaining how it works. Refinancing your home, to put it simply, allows you to access the equity you have built up by changing the mortgage amount.

For example, you bought a $300,000 condo and you paid 20%, which is $60,000, for your down payment and had a mortgage of $240,000. You continue making payments over the next 4 years and pay down the $240,000 you owed and now that amount is only $230,000. This is where a refinance could come into play – your mortgage is up for renewal in a year, but you want to do some renovations and you need to access the equity in your home.

This means that you will get an appraisal of your current home and submit that to a lender. Let’s say your $300,000 condo is now worth $350,000 and you owe $230,000. You have built up an additional $60,000 in equity: $350,000 less $230,000 less $60,000 which is your initial down payment. Your equity in the home is $120,000 because you have a mortgage of $230,000 on a home worth $350,000.

You can refinance your mortgage to access that $120,000. If you want to go back and take $50,000 from the $120,000 you have built up, your new mortgage would go from $230,000 to $280,000. You will be getting that $50,000 from the lender but that money will be added back on top of your mortgage.

Why Should You Refinance?

This is why people will refinance their homes to make higher purchases. The bank will let you borrow the money now and get it back in the future, plus interest because it is being added to the mortgage.

This is just one way on how people are able to use their home to access cash. There are other ways to do this, especially if you are looking to complete renovations. You can consider home equity lines of credit, collateral charges, and purchase plus mortgages. It can be extremely beneficial to know this before you buy. Working with a qualified Dominion Lending Centres broker for your home refinanceing in Toronto will surely give you an advantage.

Alternatives to Home Equity and Personal Loans for Home Renovation

General Faizal Garasia 4 Jul

Are there any alternative ways to get a home renovation loan from Home Equity and Personal Loans? You can also check these options if you’re looking for alternative options for the Home Equity and Personal Loans.

Home Equity Line of Credit

Home equity lines of credit, a type of home equity loan, allows you to use the equity in your home as collateral. Home equity lines of credit are revolving, unlike a home equity loan. This allows you to borrow and pay back a certain percentage of your home equity for the full term period.

Cash-Out Refinancing

A cash-out refinance, also similar to a home equity loan, is new to the mortgage. However, a cash-out refinance replaces your original mortgage with a new one instead of taking out a second mortgage. You’ll access your capital to get cash at closing. You can use this for home improvements. You will have a new balance, payment, interest rate, and terms for your refinanced home loan.

Government Programs for Home Improvement

Some government programs can also assist you in paying for a home remodel. These programs are federally insured so it may be easier for borrowers to qualify for the loan because it reduces the lender’s risk.

Connect with us to know more about the renovation mortgage options. One of the best mortgage brokers in Toronto will help you with the best available options as per your credit profile. We look forward to hearing from you.

Financing Options Home Renovation

General Faizal Garasia 4 Jul

Are you looking for a mortgage for your home renovation? You have a lot of options for financing your home renovations. Every option has its own pros and cons. To decide which is best for you, you should explore them all. Talk to your lender so they can further explain your options, tell you how much you can borrow and pre-approve your loan. Here are some of the best options on how to raise funds for your home renovation.

Your own savings or a credit card

If you’re doing the work yourself, you may want to pay for the materials for smaller plans on your own. You can also use a credit card to pay for the expenses. You should be careful not to carry the balance for too long. Credit card interest rates can go on the higher side.

Getting a Personal loan

The interest rates of a personal loan are much lower than a credit card. You can repay regularly over a set period, usually 1 to 5 years. You can reapply for another loan if you wish to borrow more once the loan is paid.

Personal line of credit

For ongoing or long-term projects, you can consider the personal line of credit. You can access funds as you need them and you only pay interest on the amount you use. Interest rates for a personal line of credit are more practical than a credit card. A line of credit lets you re-borrow funds, up to the line of credit’s limit, without reapplying, unlike a personal loan.

A secured line of credit and home equity loan

This offer combines all the advantages of regular lines of credit and loans. It comes with preferred interest rates. They are subject to set-up costs including legal expenses because they’re secured by your home’s equity.

The Mortgage refinancing

When looking to complete major renovations, the refinancing can offer some advantages. You may get a better interest rate than on a credit card or loan, but you’ll incur set-up costs. The mortgage refinancing repayment is expanded over a long time period.

Financing upon home purchase

Think about adding the cost to your mortgage if you’re planning major renovations to a home you’re about to buy. You’ll be able to pay a lower interest rate than with a credit card or a personal loan.

If you are you looking for a renovation mortgage connect with us to get help from the best mortgage broker in Toronto. We’ll give you the best available option as per your credit profile. We look forward to seeing you soon.

Is Using a Personal Loan to Pay for Home Improvement a Good Idea?

General Faizal Garasia 4 Jul

Is using a personal loan for some home improvement projects a good idea? Well, it totally depends on your needs and the interest rate you’re able to get. Interest rates on personal loans range from as low as 2.49% to as high as 36%. A personal loan with a cheaper interest rate could be very amenable to a home improvement project. However, if the interest rates are high, it’ll be very expensive.

Personal loans are usually unsecured loans. This can be helpful if you don’t want to put up your home as a security, which you must do with the home equity loans. Most personal loans have a fixed term between 1 to 7 years. A fixed term can be helpful when budgeting for a predictable monthly payment.

Where to Get Home Improvement Loans

You should always shop around to find the best personal loan for your situation as with any mortgage. To get an idea of what your local banks and credit unions can offer, you can shop around locally. It’s also important to compare with online lenders and peer-to-peer lending sites. You can pick the best option for your situation once you have a good idea of what you qualify for. Some lenders may offer discounts depending on the particular home improvement project.

Alternatives to Consider for Home Improvement Loans

Personal loans are not your only option for a home improvement project. You should consider other loans as well as alternative ways to pay for projects that don’t involve debt.

Home Equity Loans or Home Equity Lines of Credit

You can get the cash that you need for your home improvement project through a home equity loan or HELOC. After the loan is processed you’ll need a significant amount of equity in your home, usually 20%. A home equity loan or HELOC may be a good option for a more expensive project that raises the value of your home. Other options may better suit your needs if you’re considering a smaller project.

These loans come with lower interest rates than personal loans because they’re secured loans. The lender could foreclose on your home if you default on the loan. You might end up paying more interest than with a shorter term personal loan which has a higher interest rate. This is due to the longer term of the loans, ranging from 5 to 20 years. Also, interest on a home equity loan or HELOC may be tax deductible.

Credit Cards

You might also want to consider using your credit card for the home improvement projects. You could finance your home improvement project interest-free. This would be possible if you’re able to pay off the project in full within a short period of time, such as the next 18 months, and you qualify for a credit card with a 0% introductory APR on purchases offer. Of course, you’ll have to pay interest on the remaining balance if you can’t pay off the balance in full before the introductory APR period expires.

Alternatives Options Other Than Loans

You may want to consider saving up enough cash before you start your home improvement plan if you don’t want to take on mortgages. You won’t have to pay interest on a mortgage if you save some cash. However, it may take several months or years to save enough money to complete the renovation project.

Contact us if you’re looking for a home renovation loan and we’ll help you with the available options as per your credit profile. Talk to one of the best mortgage brokers in Toronto who specializes in construction and home renovation mortgages to clear up any concerns you may have. We will also help you explore all of the options available based on your goals.

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