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.