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Things to Consider Before Getting a Second Mortgage

second mortgage toronto

Taking out a second mortgage or home equity line of credit (HELOC) can be a great way to get the cash you need for things like home repairs, children’s tuition or to pay off high interest debt. It allows you to use the equity in your home without breaking your first mortgage.

But how do you know if a second mortgage is right for you? There are benefits to be sure, but this product is not right for everyone. Here are a few factors you might want to consider before making your decision.

A lump sum of cash for what you need.

One of the most appealing aspects of a second mortgage is that it can provide you with a large lump sum of cash to spend how you choose whether it be for repairs, starting a business, medical bills, to pay off other debt etc.

It is important to keep in mind however, that if the homeowner becomes unable to pay their second mortgage, they put themselves at risk of foreclosure or bankruptcy. It is important therefore to consider whether you really need the loan before applying for a second mortgage.

Second mortgages may be easier to get through a private lender.

Just because the bank turned you down, doesn’t mean that you are out of luck. It may still be possible to get a loan through a private lender – especially if you are working with a professional mortgage broker. Private lenders tend to have less stringent rules than large financial institutions so it can be easier to qualify. Just keep in mind that because private lenders also take more risk, they will usually charge a higher interest rate and have bigger penalties as well.

Should you refinance instead?

The question of whether it is better to refinance or get a second mortgage will come down to cost. For example, if you are only a year or two into your first fixed rate mortgage, the penalty to break it could be quite high, so a second mortgage may make more sense.

On the other hand, if current interest rates are high and you are near the end of the term on your first mortgage, then refinancing may be the better way to go.

A professional mortgage broker can help you compare the costs of each option in order to help you determine which one makes sense for you.

Have an exit strategy.

Most people dream of the day when they will have finally paid off their mortgage. Getting a second mortgage will inevitably delay that day. Therefore if you are going to get a second mortgage, put a plan in place to pay it off as quickly as possible. Discuss the best way to do this with your mortgage professional.

For more information about second mortgages, call us Today at 1-800-429-0717

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