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What to Know About Second Mortgages in Toronto

With all of the interest rate talk these days at the water cooler, it seems that everyone knows where the interest rates are going except for the Federal Reserve. Of course, people are speculating, and if they do predict where the interest rates are headed, they certainly could not tell you what to know about second mortgages in the city of Toronto, let alone when interest rates are rising or dropping. That’s when it makes sense to speak to a second mortgage Toronto Expert about your financial needs.

As most of you have realized by now, the first mortgage rates may not go back down to the 2004 levels when the 30-year fixed was at the low 5’s. Over the last 3 years, most homeowners have refinanced to an interest rate they are very comfortable with.

As the housing market shifts, the demand for money is still great, but people will be taking out second mortgages to get cash and consolidate revolving debt. Second mortgages, also called home equity loans have become popular alternative loans that do not require homeowners to refinance their current home loans. As you can imagine, many homeowners would rather leave their low-interest 1st mortgage untouched and simply take out a second mortgage on the property for incidental cash like making home improvements or financing a second home.

With the market changing, consumers need to understand how home equity loans work. 2nd mortgages are liens that are taken out against your home for purchase, or cash-out refinancing. Second mortgages do use your home’s equity, so you want to be frugal and pragmatic when leveraging your home.

Home Equity loans 125% – These liens are high LTV 2nd mortgages that all you to borrow against your home’s future value. It is hard to believe, but no mortgage insurance is required! The interest rate is fixed and the most common use of funds for these loans is debt consolidation.

Home Equity Line of Credit 100% – Home equity lines are more revolving credit that carries a variable interest rate based on the Fed’s Prime index reported in the Wall Street Journal. You only pay interest when you use funds from the line, and only the interest is due each month during the draw period. The most common use of funds with a HELOC is for financing home improvements.

Which ever second mortgage in Toronto appeals to you, remember to look at the closing costs, interest rate, and whether or not there is a pre-payment penalty. When you are talking with several brokers or lenders the best way to compare the loans is to view the “Good Faith Estimates” which will be provided with the loan disclosures. If you don’t qualify for a 2nd lien, consider an Subprime mortgage loan that offers cash out and refinancing up to 95%, even with bad credit.

Taking out a second mortgage is more advantageous than applying for a home equity line of credit because it is not possible to get variable interest rates when applying for a home equity loan. Because today’s economic and investment conditions are volatile, it would be quite easy to find yourself with rising interest rates and increased loan payments if you take out a home equity line of credit.

The best way to find financing is by taking out a second mortgage because this gives you the option of fixed interest rates. This is a very good safety net and offers you increased protection, especially considering the economic instability that is so prevalent in today’s business world. In this manner, you can avoid financial bankruptcy, or even unease, and have both a good standard of living and enjoy lower interest rates while making payments.

Bad Credit Second Mortgages In Toronto

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.

Instead Of Refinancing Get a Second Mortgage

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.