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A second mortgage loan is a loan that is registered in 2nd position on your home. This means you currently own your home and already have a 1st mortgage with a bank or private lender.
A second mortgage loan is a loan that takes your property as guarantee that gets registered after your first mortgage loan.
Why might you need a second mortgage loan?
If you are looking to consolidate your debts, to pull equity to do repairs or renovations on your house, this could be a good option. A second mortgage is usually sought after if your primary lender will not let you refinance due to a low credit score over indebtedness or low income.
Also, if you have not paid a contractor, the federal or provincial government, they might register a lien on your property. A lien is simply any debt attached to your home to secure a creditor debt. If that is the case, and you now have contractor or government liens on your home, you might not be able to refinance with your lender even if you have good credit. This is because of the nature of the government liens; banks do not refinance you to pay it off.
When taking on a second mortgage loan, rates are higher than other loans due to the higher associated risk. They range anywhere from 7.99% to 16.99% plus associated lender and mortgage broker fees.
The second mortgage loan should be used with a quick turnover strategy in mind. Usually, a term of 12 months or less. Your exit strategy is always to refinance or sell.
It should be used with caution, to address a temporary problem, increase your credit score and then have your mortgage broker refinance you back to a regular lender with lower rates.
Let us take Jonathan’s example:
$400,000 Value of your home
$200,000 First Mortgage with ABC Bank
He needs $80,000 to pay off debts which include a consumer proposal, his wife’s personal debts and repairs on his home. Jonathan receives a second mortgage loan registered on his home behind the $200,000 first mortgage. Even if the second mortgage loan will be a little more expensive than a second mortgage loan, he will be able to save money every month, fix both is wife’s and his credit by paying of the consumer proposal and bringing those much needed repair to his property!
So, he has 2 mortgages on his home, one of $200000 and one of $80,000, for a total of $280,000.
The reason why you want to do business with a specialised mortgage broker when it comes to obtaining a second mortgage loan is that a private lender’s job is to make loans and make money, not fix your credit. They do not specialise in credit rebuilding and are not trained to help you requalify with banks at the end of your term! Also, there is a common practise with private lenders called “loan to own”, where private lenders will make you an offer that looks good on the outside but put clauses in their contracts that are so restrictive that you can easily default and then have them try to seize your home! The devil is in the details.
Not all mortgage brokers are made the same, of course. You want to deal with one who is knowledgeable and that focuses primarily on private lending solutions and strategies. It is also important to remember that its one thing to get into a private loan and a whole other story to get out of the private loan and back to traditional lenders! You need to have a strategy that will work on your mortgage payments and your credit simultaneously so that you can exit at the end of your term and not get stuck paying high interest any longer than required.
Although there are associated fees with a mortgage broker when it comes to a second mortgage loan, they are usually financed right into your mortgage and not paid upfront. And you only pay for results. If we are unable to get you the right mortgage, there is no fee. When it comes to something as important as registering a second mortgage on your home, it is better to pay a little more and have peace of mind, than to do business with the private lender directly, even if it is a little cheaper, and put your home at risk with restrictive terms or abusive clauses. Quality comes with a price, and their no price for piece of mind.
To see how a second mortgage loan can help you, complete our online application and one of our specialists will be happy to contact you to schedule a call that meets your availability! Looking forward to helping you!