What Is a Second Mortgage?
Basically a second mortgage is another mortgage, smaller in size that is given to the homeowner, through second mortgage companies, when the home or property in question already has a first mortgage. This money may be used for the purchase of a new house, provide your newly-wed child with a place to live, to better accommodate your aging parents, to purchase a property for your child to live in while they attend university or because you wish to acquire a vacation or country house for weekend getaways.
There are a great many second mortgage brokers available to choose from. The GLM Mortgage Group, a second mortgage company, has many great programs that will fit within your financial means. Specializing in assisting individuals who own multiple properties for any purpose The GLM Mortgage Group is ready to help.
To borrow money, from second mortgage companies, against your home you are required to have equity in your home. Home equity is the value of your home, minus any money owed against it. For example, if your home is worth $200,000 with a $130,000 mortgage, then your home equity is $70,000.
- Second mortgage closing costs can range from 2% to 5% of the amount you borrow, depending on the lender.
- You can use a second mortgage for debt consolidation or for major purchases.
- Your credit score affects your second mortgage interest rates.
- A higher credit score will result in lower mortgage interest rates while a lower score means higher mortgage interest rates.
- Second mortgage loan interest rates are higher than first mortgage loan interest rates – but are still lower than most credit card and car loan interest rates.
- Second mortgage terms can be from 1 to 35 years, depending on the second mortgage company.
- The second mortgage will be secured by your home.
Second Mortgage Tips:
Go For it – Only If You Can’t Refinance
Go for a second mortgage only when you are sure there is no easier way out. If you cannot pay your first mortgage, see if you can get it refinanced instead of taking a second one. With refinancing, you still retain equity in your property, and you might get the loan at better rates.
Be Prepared to Pay Higher Interest
Look at the terms of the mortgage carefully. The interest rate might be quite high, because as the second mortgage lender does not have the first claim on your property in the event of a foreclosure, his risk is significantly higher. You should also know that even if you keep making payments on your first mortgage regularly but default on the second mortgage, you could still end up losing your house. Lenders for second mortgage companies can buy out the primary mortgage and then foreclose to recover their money.
Be Aware of the Fees
Fees and charges for a second mortgage can be quite substantial. There is extensive paperwork required, and the second mortgage companies will also need a fresh appraisal of your property to estimate its value and your equity in it. Application costs, appraisal fees, legal fees etc can amount to a significant sum.
Timing is Critical
When you are going for a second mortgage, the timing of taking the loan is very important. The loan amount will depend on how much equity you have in your house, which in turn depends on how the value of your house has changed since you took out the first mortgage. If the housing market is down, wait, if possible, for the prices to pick up. Like in any other loan, interest rates play a very important role in second mortgages. If interest rates are low, especially if you can lock in a fixed rate, it is good time to take out a second mortgage.
A Second Mortgage is limited by your Home Equity
A 2nd mortgage can only rise to 85% of the value of your home, but in most cases it will be from 75% to 80%. When you deduct the balance of the first mortgage, it leaves you with your borrowing amount. Here’s an example. If your house is worth $100,000 then you can only borrow up to a maximum of 85% of its value. This would leave you with $85 000. If your first mortgage is $40 000, then you would be able to borrow $45,000 (the amount left after you deduct your first mortgage from the $85,000). Remember that there will be closing costs – and if you need to borrow them as well, they will be deducted from the money advanced to you on closing.
Second Mortgage Interest Rates
Second mortgage rates are quite a bit higher compared to first mortgage loan interest rates. Second mortgage brokers do not post second mortgage interest rates to the public as they differ from situation to situation. Have a second mortgage company assess your personal situation to decide if a second mortgage is your best option.
Second Mortgage Insurance Rates
If your intention is to acquire financing for a second property above 80% of the purchase price, it is mandatory that you apply to CMHC or Genworth for mortgage insurance. In most instances, banks are looking for mortgage applicants to make significant down payments in the area of 25% in order to be eligible for the remaining financing.
Second Mortgage Payments
Mortgage payments for second mortgages are arranged before the time of closing. In most cases, direct withdrawal from your current banking institution is used.
If you wish to see what your second mortgage payments will amount to, try a mortgage calculator.
How to Qualify For a Second Mortgage
To qualify for a second mortgage you must have more than 20% of the equity in your home. You must be able to pay for the mortgage without exceeding your Total Debt Service Ratio (TDS). You can qualify if you have a damaged credit score, but you will pay a higher rate of interest than qualified borrowers.
Your credit score shows how likely you are of fulfilling your financial obligations on time. You can qualify if you have a damaged credit score, but you will pay a higher mortgage loan interest rate than better qualified borrowers.
The longer that you have spent working with one employer, the more secure your job looks to the lender – therefore the easier it is to qualify for a second mortgage. At a minimum, you must be off your probationary period and have a previous employment history of 6 consecutive months or more.
Basic mortgage documents will be requested such as your Social Insurance Number (SIN), proof-of-employment letter, first mortgage documents and bank statements. Visit our Mortgage Documents page to see what other documents may be requested by the lender.
Second Mortgage Closing Costs
Closing costs can run approximately from 2% – 5% of your second mortgage. Closing costs include, but are not limited to:
- Appraisal fee
- Legal fees
- Title search
- Title insurance
- Home survey
- And more.
Debt Consolidation utilizing your Second Mortgage
If your debt is weighing you down and a reduction in your monthly payments would open up your cash flow, you should consider consolidating your debt through a second mortgage. By utilizing second mortgage companies to consolidate your debt, your monthly payments can go down by as much as 50% due to lower interest rates and longer repayment schedules. Find out how to increase your monthly cash flow by contacting The GLM Mortgage Group right now.
What is the GLM Mortgage Group?
GLM Mortgage Group, powered by Dominion Lending Centres, is your Vancouver and Lower Mainland Mortgage Brokerage service. We are always ready to move forward with you to obtain the mortgage you need with the sharpest mortgage rate available. Whether it’s a fixed rate or variable rate mortgage you are after, we are dedicated to finding the best mortgage rates in Vancouver, including Home Loans, Consolidation Loans, Lines of Credit and more. No matter what you need, our team of Mortgage Specialists will follow through to find the best mortgage product that fits your individual circumstances. Our free online mortgage calculator keeps you informed on how much your mortgage payment will be as well as show how different mortgage rates will affect the mortgage you require.As your Vancouver mortgage broker, GLM Mortgage is committed to clear communication with our clients. We make sure you are informed on all the mortgage options available to you. We call you back within 90 minutes to make sure that you have the fastest service available. We are not only available in Vancouver and the Lower Mainland, we are also available across Canada.GLM Mortgage Group is your Vancouver mortgage specialist. With over 22 years of experience in the investment industry we know how to wade through the challenging process of getting a mortgage. We provide smarter options to putting your mortgage in place. We know how important it is to have an experienced professional Mortgage Specialist available to walk through your mortgage experience and stay with you through to the very end.We get you a fast “YES” at the sharpest rate… guaranteed! Call us now so that you can get that mortgage you’ve been waiting for. We already have been working for you, making sure that you will have every option of a mortgage available to you. GLM Mortgage Group is on call for you!