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.