Things You Should Know Before Going for a Second Mortgage in Toronto

If you own a home in Canada then you have probably have heard of a second mortgage at some point in your life. A second mortgage is similar to a first mortgage, in that it is a loan secured by your property. As time passes you will accumulate more and more equity on your property. A second mortgage is primarily intended to use the equity that you’ve accumulated over the years.

According to a report by Business Insider, almost 2 million Canadians have a second mortgage, and nearly as many that have a HELOC. Some Canadians will use their second mortgage in order to avoid having to declare bankruptcy. In any event, a HELOC, for those unaware, is also another form of a second mortgage, because it serves as a line of credit for home equity. In other words, the person will supplement a second loan over their first in order to access their equity. Below are some things that you should know before going for a second mortgage in Toronto.

Different Types of Second Mortgages

A revolving HELOC works similarly to a credit card. That is, the borrower will have access to equity in perpetuity as they continue to pay off the principal (what they owed previously) over the upcoming months and years. Moreover, a HELOC can be modified to become a closed second mortgage, which functions much like a loan for a vehicle. That is, the borrower will receive only one lump sum of money from their equity and they must pay it off in a gradual manner.

It should also be noted that it is difficult to qualify for a HELOC of any kind, because they tend to only be offered to those with an impeccable credit profile and who happen to live in a prosperous urban area. Hence, those who have a poor credit profile or have a meager income will only likely have one option at their disposal—a private mortgage.

The Two Main Reasons Why Second Mortgages are Used

The most popular reason why a second mortgage is used is to pay off a consumer debt that has high interest. Many homeowners will also use a second mortgage in order to upgrade their home for resale or to renovate it for their own recreational purposes. Leveraging a second mortgage is highly recommended at the moment because credit card interest rates are presently 15%. As such, you can save a large sum of money by opting for a second mortgage.

For instance, let us imagine that you owe $30,000 on your credit card. In such a scenario you would have to pay roughly $600 in minimum payments every month; This is of course assuming that a 3% minimum payment is required. Now, if your interest rate was 15% APR then you would owe $4,500 in interest charges after just one year has elapsed. This is before you even get to the principal amount that is owed. As can be seen, interest charges can make or break first time homeowners who aren’t too careful with their fiancees.

Due to the aforementioned problems, many Canadians turn to a second mortgage in order to pay off their credit card debts. The end result is that their interest rates will be reduced because their second mortgage is secured by their home, which serves as the primary asset in this case.

Remember that Your Home Will Be Used as Collateral

If you have decided to take out a second mortgage on your home you must remember that your home will actually be used as collateral to secure the loan. As a result, if you fail to pay it off then the lender can foreclose on your property the same way they could with your first mortgage. However, the tradeoff is in the significantly lower interest rates that you will be charged, as your home will serve as an asset that will back your loan.

Take Advantage of Interest Only Payments

It is possible to only make interest payments with many of the second mortgage products that various lenders offer their clients; this will allow you to have easier and more affordable access to your home before you opt to sell your house to the highest bidder. Your monthly payments will also be significantly lower.

To further illustrate, if you were interested in renovating your home before resale or are interested in renegotiating your first mortgage, then you could remodel your home using the funds procured from the second mortgage. You could also have the option to pay off the interest charges. Then after you are done giving your home a makeover you could then resell it at a higher price and then use some of the money that you’ve made to pay off your second mortgage.

Avoid Private Mortgage Insurance

When a person applies for a standard mortgage in Canada they need to acquire private mortgage insurance if they are unable to put a minimum 20% down payment on their house. The end result is that they will have to pay fees, known as Canadian Mortgage and Housing Corporation fees, which can actually be quite exorbitant.

For instance, if you were to take out a half a million dollar mortgage with a 5% down payment then you would have to pay 4% worth of Canadian Mortgage and Housing Corporation fees. In other words, you would need to pay almost $20,000 in fees because you weren’t able to make the minimum 20% down payment.

The good news is you can take out a second mortgage in order to avoid private mortgage insurance. Of course this also means that you will have to add additional expenses to your monthly budget but it can still be a more affordable alternative to having to pay private mortgage insurance fees.

If you would like to learn more about obtaining a second mortgage in Toronto, please visit our website or call us at 1-888-495-4825.

source: northwoodmortgage.com

Five Tips For Increasing Your Home’s Equity

Equity is the magic word when it comes to homeownership. There are equity mortgages and other products that you can tap into when you’ve increased the value of your home. However, equity doesn’t grow on trees, so here are five tips for increasing your home’s equity:

  1. Pay off the principal: The quicker you pay off the mortgage principal, the more equity you build up. Look into acquiring prepayment privileges from your lender. Or if the prepayment penalty isn’t that great, it may make sense to pay off your principal as quickly as you can even if you’re penalized because you’ll be that much closer to getting an equity mortgage (or similar product).

  2.  Hire an inspector: A certified home inspector will tell you how much your home is currently worth and what improvements are necessary to up its equity.

  3.  Make upgrades to the kitchen and bathrooms: Get rid of old tiling, upgrade your appliances, get a new showerhead – do whatever it takes to upgrade your bathrooms and kitchen. Moreover, if you have an unfinished basement, finish it. You can even add a basement apartment if there’s enough room to have a full bath, kitchenette, bedroom and living area.

  4.  Create more curb appeal: Curb appeal is how enticing your home is from the street. Ask yourself this: “When people drive by, do they stop and marvel at how beautiful my home is?” If the answer is no, then you have work to do. To create more curb appeal, make sure that your front door, roof, porch, windows – basically any area of the home that is visible from the street – is revamped or at least looks new. Manicure your lawn as well because overgrown hedges and grass can make a property look uninviting.

  5.  Clean your house: A clean house is an attractive house. Even if you’re not planning on selling your house, hiring professional cleaners to clean your home’s eavestroughs, windows and doors can increase its equity. Make sure everything gets a deep clean, from the light fixtures to the furnace to the garage door. Another bonus of cleaning your house is that you can declutter. Getting rid of old clothes and boxes from your attic or garage will not only create space, it will make moving easier when/if you do sell your home.

Once you’ve put money back into your home, you can take money out of it. Equity mortgages are available that use the amount of equity built up in your home to determine how much you can borrow. You can also refinance or take out a HELOC (home equity line of credit).

source: northwoodmortgage.com