Talk about misleading and confusion and mortgages, especially second mortgages are one of the prime victims of misinformation. Although second mortgages are becoming increasingly common, many Canadians, even those who have second mortgages, seem to be quite ambiguous when it comes to facts about second mortgages. Here are the top second mortgage facts revealed by private mortgage expert from Ontario’s best private mortgage company, Interfinance Mortgage Corporation.
There are different kinds of second mortgages
Home Equity Line of Credit (HELOC) and Closed Second Mortgage are two types of a second mortgage available in the market. The revolving HELOC offers the borrower continuous access to equity as they continue to pay the principal amount. It is akin to how credit cards work. On the contrary, a Closed Second Mortgage means that borrower gets a lump sum cash from the equity and can gradually pay it down, just like an auto loan.
Two most common uses of a second mortgage
The second mortgage is most commonly used either to pay off high-interest consumer debt or to finance a home renovation or upgrade. As average credit card interest rate can be as high as 15%, you can save quite a lot of money with second mortgages.
Home can be a collateral
You can use your home as collateral for second mortgages. However, if you fail to repay, the bank has the option to foreclose just like in case of first mortgages. One advantage of using your home as collateral is that you can get a significantly low-interest rate.
Interest only payments
Many second mortgage borrowers can benefit greatly with the interest-only payment option which quite a few mortgage companies allow in second mortgages. With this option you can simply, for instance, remodel or repair your home, then sell it at a better price and pay off the remaining mortgage.
When it comes to a conventional mortgage, you will have to opt for private mortgage insurance (PMI) if you do not have the 20% down payment expected. In such a case, if you take a second mortgage to support the down payment, you can avoid significant PMI expenditure.
Second mortgages are an amazing option but remember that you still need to pay some fees to avail them. It is better to check with your provider to know what will be the fees before you choose one.
When it comes to the second mortgage, often individuals do not compare second mortgages the way they compare the first one. Even with the second mortgage, it is important to compare offers from different lenders. Your private mortgage broker should be able to do that for you.
Second mortgages can also help with bad credit. Gaining access to your equity gives you an opportunity to pay off multiple debts and instead have a low-interest single target that you need to fulfil on a monthly basis.
You may have several questions and concerns pertaining to second mortgages. Talk to our qualified and experienced private mortgage expert from Interfinance Mortgage Corporation to know your options pertaining to obtaining a second mortgage.