Second mortgages are those in which you can take a loan as a property owner and take it out on an already mortgaged property. If you are reading this post, it can be safe to assume that you know what home equity is and how it works. However, for new readers, when you purchase your home on a mortgage, you will have no equity in the property. Still, as you slowly start paying off your mortgage, you will get back your equity on your property, and you can use that equity as collateral for loans. And that is how you can apply for a second mortgage.
Different Types Of Second MortgagesIf you are already paying for a primary mortgage, have good credit, and have built over 20% equity in your home. In that case, you may be eligible to get a second mortgage in the form of a Home Equity Revolving Line of Credit. HELOC loans allow you to borrow money from a revolving line of credit up to a specified limit. There’s also the option for a home equity loan, where you will get a lump sum amount of cash that you can pay back, similar to your first mortgage. This type of loan is accessible to Canadians with low credit scores or less equity in their property. At this point, you should know that both of these loans are secured against your home equity. As a result, second mortgages can be used to free up the equity in a property for cash flow purposes.
A Few Reasons Why One Can Choose A Second Mortgage.
- Debt consolidation: You can use a second mortgage to consolidate your debts into a single payment. It can be beneficial to pay off higher debts such as student loans and credit card bills. You can group these debts together and clear them off at a lower interest rate.
- Home renovation: The funds you receive from a second mortgage can also be used for home improvement projects. Also, you can choose to use the funds for a significant purchase, such as a car, or invest it in businesses. Renovating your home can increase its market value, and if you want to sell your property shortly, you can expect a profitable return on investment.
- Buying a second property: Many choose to use a second mortgage as a down payment for a second property. If you’re thinking the same, you should know that a down payment of at least 20% is required for a second mortgage. The market price of a second home will almost be the same as your first property, including the cost of valuation, administrative charges, and legal fees. If you need professional help living in Brampton or Mississauga, we will be happy to help.