In Ontario, a 2nd mortgage can be secured on a property title. This second mortgage will have a separate charge on the property title and will not affect an existing mortgage in any way. Due to the higher risk for the lender, usually taking a second mortgage in Ontario will have a higher interest rate. The first mortgage will be paid in the event of default before the second.
Taking a second mortgage in Ontario can allow home owners to use their equity without any effects on the first one. If the first mortgage has a large pre-payment penalty or a low rate, taking another loan can be a major advantage. For those who are self-employed, those with poor credit, or those in need of fast cash, it can be easier to qualify for your second mortgage than your first.
Common Uses of a 2nd Mortgage
- Home Renovations
- Consolidate credit cards
- Pay off debts
- Pay off property tax or loan arrears
- Access equity in the form of cash
- Unexpected expenses / emergencies
- Purchasing a new car
- Renovations to your house
- Various investments
- Paying for an investment property
- For debt consolidation
- For an expensive luxury vacation
Debt consolidation is the most common reason that people choose to take out a second mortgage. Taking out a loan against your home will let you pay off other financial obligations allowing you to focus on repaying a single debt rather than many. This can make payments much easier to manage.
Consolidating your debts into a second mortgage can be extremely beneficial for eliminating outstanding debts that have higher interest rates, as it will allow you to effectively cut those interest rates down to match those for the new mortgage.
Second Mortgage Rates in Ontario
Due to the fact that a second mortgage is much riskier for the lender, the interest rates on your 2nd mortgage will typically be higher than the first to reflect this added risk. However, it will be easier to negotiate for lower rates if you are currently in good financial standing. This includes having a good credit rating, owning a higher percentage of equity in your home, and being able to demonstrate reliable income to lenders.
In Ontario, usually the rates for a 2nd mortgage vary in the range from 4.99 percent to 14.99 percent. The rate depends on factors including marketability, location, and credit.
Finding a Lender & Qualifying for a Second Mortgage
Banks and other large financial institutions will often be averse to taking on the risk of a 2nd mortgage, so being accepted for a loan application from a bank may prove more difficult. Private lenders may be more inclined to take on this risk, however they may present you with a higher interest rate as a result.
Major banks often offer what's called a Home Equity Line of Credit (HELOC). This functions in the same way as a second mortgage in that it allows you to access the value of your home's equity, however unlike a mortgage a home equity line of credit functions as a revolving debt. This means that rather than having a fixed term and monthly payments as you would with a typical mortgage or loan. Instead you will instead be able to utilize the credit as you see fit on an ongoing basis and make payments on it as you would a typical line of credit.
It's important to "shop around" and compare options from various lenders to ensure you get the best possible rate. This is where consulting a broker comes in handy. In addition to their market knowledge, mortgage broker will have access to many different lenders which means that they can find you the best possible rate.
A broker can also help you plan your 2nd mortgage to ensure that the details of the loan will work for you and your financial situation. The most essential information to consider when planning a 2nd mortgage are loan to value rate, the payments, the amortization term, and the exit strategy.
The 2nd mortgage term refers to the length of time for your loan. In order to use the 2nd mortgage to your advantage you'll have to find the right term length for you. In general, the 2nd mortgage is taken on a term shorter than your first. A common format for a second mortgage is a 1 year term with interest only payments.
Want More Information on Second Mortgages in Ontario?
Ray Silvestri is an experienced broker working in the Burlington, Hamilton, Oakville areas of Ontario, Canada. Contact him today for expert advice on getting a second mortgage in Ontario.