What Do You need to Know About Second Mortgages in Canada?

Applications for the second mortgage are going up in Canada lately; however, not everyone is familiar with how it works. If you are not familiar with the second mortgage, it is basically a kind of loan that allows you, the homeowner, to get access to your home’s equity as long as you are able to meet the requirements of second mortgage lenders that you are applying to. However, if you default on your payments for your second mortgage since your home is the collateral, it can be foreclosed to pay your debt. This is why it is important that you learn more about second mortgages first before applying for one.

What You Don’t Know About Second Mortgage

There are a few things that you should learn about second mortgages in Canada before you even apply for one such as:

There are different types of second mortgages.

Home equity loans and home equity lines of credit are two common types for this mortgage. Each one has its own terms that you should be able to meet before being qualified. Choose one that is appropriate with your financial capabilities.

Your home becomes collateral.

If this is your first time to apply for a second mortgage, keep in mind that your home will be the collateral. What you need to know about this is that if you don’t pay your debts on time, or you got behind in payments, your home can be foreclosed.

Interest-only payments can be done.

There are some second mortgages that let you pay the interest-only up to the point when you are ready to sell your home. What this means is that you can use your second mortgage to finance your current home’s renovation so that you will be able to increase the price of your property. You can use the money that you got from the sale to pay your mortgages.

Cheaper than PMI.

If you are considering applying for a conventional mortgage, but don’t have the necessary 20% to be used as a down payment, the mortgage lenders will ask you for private mortgage insurance or PMI. In Canada, this equates to getting insurance from Canadian Mortgage and Housing Corporation, but the problem here is that their rate can be quite high. Taking out a second mortgage on top of your primary or first mortgage, and then adding it to your monthly bill will actually save you money.

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