When you are looking for funding to invest in another project or refinance your house or buy a car, a second mortgage is a great way to go about it. Taking a second mortgage is also a big step. Whenever you have to make any financial decisions it is always best to be fully informed before jumping into it. If you have been considering a second mortgage, we are here to tell you all about it. To be on the safe side, you should reach out to a Certified Mortgage Broker https://certifiedmortgagebroker.com/second-mortgage-toronto/ who will help you to understand the second mortgage better and also help you to get the best offer.
What is it?
A second mortgage is a type of loan which uses the equity on an already mortgaged property as collateral. The equity here is understood as the difference between the market value of the property and the amount which you owe on the mortgaged property. This equity grows with the increase in the market value of the property and as you repay the capital. A part of the mortgage payment comes as the capital raising the equity. It is up to the homeowner how they want to use the equity.
There are higher interest rates on a second mortgage when compared to the first one as the first mortgage has precedence over the second one. The second mortgage can be completely paid off only after the first one has been covered completely. This implies that the second mortgage holder has a higher risk associated with the first one. It is because the chances of the borrower defaulting are higher. With a second mortgage, you can only borrow up to 80% of the equity on your home. The money received can be used for anything. Be it a home improvement, school tuition, purchasing another property or mortgage arrears.
How does it work?
The second mortgage is a financial instrument that lets the property owners use the equity in the property to get a second loan. It can come in more than one form. If you want, you can take the second mortgage payment in a single lump sum and pay it back in set monthly instalments. The contract includes everything including the capital, interest rate, repayment and the repayment term. Once you have paid off the mortgage, you are required to conclude another mortgage contract if you want to borrow against your home equity again.
A lot of homeowners make use of their equity to secure the Home Equity Line of Credit or HELOC. This means that you have a line of credit available whenever you need money. You don’t have to use it and you are not required to pay any interest unless you use the money. In such a case, the lender sets the top limit of borrowing. You can borrow within the range and repay the amount as per your comfort. You would be only required to pay interest on the amount which you owe.
