A general requirement to qualify for bad credit second mortgages is that the owner should have home equity. These can be readily assessed by looking at the number of years when the owners have not borrowed money against the property.

There are several advantages when an owner gets bad credit second mortgages in Toronto. First, such a mortgage can offer lower interest rates even on high credit bills. In general, it has been proven that monthly payments on second mortgages are lower than conventional rates. Likewise, some bad credit second mortgages offer the owner a break from his or her obligations. Some lenders offer their clients a thirty-day break from payments. This could be very much helpful, especially for applicants who still have to pay other high bills. Lastly, the interests of some bad credit second mortgages are deductible on federal income taxes. This would mean considerable savings for the owner.

However, there are also disadvantages to bad credit second mortgages. Because the lender will most likely treat the applicant as a high risk, high-interest rates are likely to be imposed. Second, obtaining such a mortgage can be a very tedious and time-consuming process. The reason behind this is that lenders are most likely to take their time before finally deciding to do business with applicants who have bad credit standing.

To apply for bad credit second mortgage, the applicant should first get a valid report of his or her credit standing. If the applicant has been connected with a financial institution, he or she may first consider applying for a mortgage from that institution. Most likely, such a company would be more willing to accommodate his or her application immediately. Applicants are also suggested to consult mortgage brokers. They can help analyze options available and can also provide access to several lending agencies.

If your existing second mortgage loan has a high-interest rate, you may be thinking about refinancing. You are not alone. Millions of Canadians have high-interest second mortgage loans from purchasing their homes at 100% financing – even with bad credit.

Like most Canadians, when we purchased our home, four years ago, we took out a first mortgage loan for 80% of the home value and then a second mortgage loan for 20% of the home value. The first loan was at 7%, while the second loan came with a whopping interest rate of 10%. Since we knew, we could refinance the second mortgage, we charged forward. Six months later, our home value was up 10%, giving us enough equity to refinance the second mortgage into the first mortgage. We ended up with one mortgage, at a much lower interest rate.

If you are struggling with bad credit, you can still refinance your second mortgage into your first mortgage to reduce your monthly mortgage payments. Here are some tips for a successful second mortgage refinance:

Review your second mortgage loan contract to ensure that there is no prepayment penalty associated with the loan. If there is a prepayment penalty clause, contact your lender to discuss your options.

Shop around for the best loan terms. Don’t rush into a loan with the first lender, who knocks on your door. Your loan is a package that comprises interest rates, fees, points, prepayment penalty clauses, balloon payment clauses, etc. Make sure you understand your loan terms.

Second mortgages in Toronto are home equity loans that use the remaining equity on your home to guarantee repayment. Thus, the previous mortgage loan remains unaltered as only the remaining equity is used and not the one used to guarantee the mortgage loan balance. This is particularly important under certain circumstances when the outstanding mortgage loan has very advantageous terms and it makes no sense to refinance it.

Second Mortgages and Home Loans

Second mortgages are loans based on the equity that use only the exceeding equity that is not guaranteeing the outstanding mortgage loan as collateral. Thus, with a home equity loan, you can obtain additional cash out of your property just like with cash-out refinance home loans but you don’t need to touch your outstanding home loan.

Compared to home loans or first mortgages, second mortgages charge slightly higher interest rates and don’t offer such advantageous terms. With a home equity loan or second mortgage in Toronto, you won’t be able to obtain repayment schedules of up to 30 years like with home loans but you can get up to 15 years without difficulties.

When to Resort to a Second Mortgage in Toronto

Cash-out refinances loans are an excellent option. They provide all the funds you need while refinancing your outstanding mortgage balance. Besides, like home loans, they provide very advantageous terms. And you end up with a single monthly payment instead of having two payments as you do with second mortgages.

However, this is true only if your new refinance home loan has better or similar terms as your previous mortgage. Otherwise, refinancing your home loan may not be to your advantage and the cash you obtain from a cash-out refinance home loan may turn out to be significantly expensive compared to getting additional funds with a home equity loan or second mortgage.

For example: If you obtained your current mortgage loan under good credit and market conditions and thus you have a fairly low interest rate, chances are that by refinancing your home loan and due to the fact that you want to obtain additional cash via a cash-out refinance home loan, you’ll end up paying a higher interest rate.

If the amount of money you still owe on your mortgage loan is significant, you may end up wasting thousands of dollars more on interests and you need to ponder that when you analyze the costs of refinancing. Instead, with a second mortgage, you are just paying interests for the money you are actually requesting and not also for the amount of your outstanding mortgage that remains with the same interest rate and fees as always. Thus, when analyzing whether you should go for a second mortgage or a cash-out refinance home loan you need to take into account APRs, Outstanding balances, and the costs of each financial transaction.

Rates on Second Mortgages

Many second mortgages come with a fixed interest rate. This means that the interest rate will never vary throughout the life of the loan. Second mortgages that have fixed rates are often a comfort to borrowers because they know what kind of payment they can expect each month. Though second mortgages with adjustable rates are available, before purchasing this type of loan, borrowers should be confident of their ability to handle a higher payment should rates increase.