Many homeowners take out a second mortgage on their property to access equity built up in their homes. And then they use that money for anything from home renovations, to their children’s education, investing, or even to pay off debt.

What is a Second Mortgage?

The Bank of Canada announced recently that it was holding its trend-setting overnight lending rate at 0.5%. The key lending rate is important because it impacts what banks can charge for mortgages and loans. Historic low lending rates, which have been in place since 2009, have resulted in ultra-low fixed and variable lending rates.

Because the Canadian economy has plenty of room to grow, many expect the Bank of Canada to keep interest rates at this level until the end of 2016 or even into the first half of 2017. This is excellent news for Canadian property owners looking to take out a second mortgage and lock in the lower rates.

A second mortgage is a second loan that is secured against the equity in your home. With a traditional second mortgage, you can borrow up to 85% of the appraised value of your home, minus the amount left to pay on your first mortgage.

Is a Second Mortgage Right for You?

With Canadian home prices rising steadily and interest rates low, a second mortgage is a great way to access equity you’ve built up in your property. Three of the most popular reasons for refinancing include: lower interest rate, debt consolidation, and access to home equity.

A second mortgage, as the name implies, is a mortgage loan taken out after the first mortgage is already in place. It does not replace the first mortgage. With a second mortgage, a homeowner will take out a separate mortgage with a different lender. This means that while you make payments on your second mortgage, you will also continue to make payments on the original, first mortgage.

The term second mortgage is used in part because it is second in priority if you happen to default. If you do, the first mortgage gets paid off before the second one does. A second mortgage is thus considered riskier for mortgage lenders. To compensate for this additional risk, interest rates on second mortgages are higher than on the first, or principal mortgages.

Top Ways to Refinance

To qualify for a second mortgage, lenders will look at how much equity you have in the home. The more you have available, the better your chances for qualifying for a second mortgage. They also want to ensure you have a dependable source of income so you can make these additional payments. Lenders will also look at your credit score. The higher your score, the lower your interest rates.

For homeowners with more than 20% equity in their homes and good credit, a popular, affordable second mortgage will be a home equity line of credit (HELOC). A HELOC is a revolving line of credit that accesses up to 65% of the value of your home. You receive a commitment for an agreed upon amount and use only what you need. You also only pay interest on the amount you use.

If, however, a homeowner has bad credit and/or little equity built up in their property, they may want to consider getting a second mortgage through a trust company, smaller bank, or private lender. A more traditional second mortgage is for a specific amount and repaid with monthly payments. Here you can borrow up to 85% of the appraised value of your home, minus the amount left to pay on your first mortgage. Helping You Find the Best Low-Rate Second Mortgages

If you’re looking for a second mortgage and want to know what you can afford, it’s important that you work with a mortgage broker that has a proven track record of helping clients find the best financial products at the best rates. A second mortgage that not only meets your financial needs but also your long-term lifestyle needs.

The licensed, independent agents at will help you make the most informed decision possible when it comes to getting a second mortgage. To see what kind of second mortgage is right for you, contact the mortgage experts at today. Or apply online and one of our lending specialists will help you set up an appointment for a free, personal consultation.


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