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!