Planning on taking out a second mortgage in Ontario? Then read on – this article has answers to all the questions you might have.

When planning to renovate your house, pay for the family affair, consolidate debts or buy a new home, there are several things that you need to consider, including the source of funds.

You may use your credit cards to pay for a wedding or home renovation, but you will need a loan to consolidate your debts or buy a property.  If you already have a mortgage or planning to get a mortgage, but still need more money, as a homeowner, you may think of getting a second mortgage. The second mortgage in Ontario can be arranged with a financial institution, credit union or private lender

The second mortgage loan can be helpful when you need cash for home renovations, emergency expenses, funding education or for consolidating debts. Though risky, second mortgages can often be a vital tool for solving many financial problems.

What is a Second Mortgage?

A second mortgage is simply an additional loan against a home with an existing mortgage on it. With this loan, you use your home as the collateral. While the ‘first mortgage’ is used to finance the initial purchase of a home, the ‘second mortgage’ can be used to finance other financial obligations.

Second mortgages in Ontario allow you to cash out money worth the equity amount of your existing home or get additional funds to buy a new one. The equity is your home’s current market value less the money you owe to your lender. For instance, let’s say your home or a new home is worth $400,000, and you owe your lender $150,000 or taking a first mortgage for the said amount. With that, your equity to get a second mortgage is $250,000 which is your home equity value, and you should be able to apply for the second mortgage of up to $225,000 (90%)

Why Do I Need a Second Mortgage in Ontario?

Being one of the quickest ways of getting capital, getting a second mortgage in Ontario can be useful in financing a variety of projects. When faced with certain financial obligations, you can apply for these loans to help you settle your financial needs.

Here are some other reasons why it is worth applying for a second mortgage in Ontario.

• To improve your credit score especially when your credit ratings has reduced critically after taking the first mortgage and maxing up on your credit cards.
• To get some money for financing home events such as birthday parties, weddings.
• To finish the basement, upgrade the kitchen or add a swimming pool to your backyard.
• To pay any funds owed to the Canada Revenue Agency or collection agencies
• To get funds for consolidating other debts

How to Qualify for a Second Mortgage in Ontario?

Now that you understand how the second mortgage in Ontario works, let’s delve into how you can become eligible for these loans. Many clients in Ontario can apply for second mortgages of up to 90% loan-to-value (LTV) ratio. But before that, the lenders will have to calculate the equity in your home and may check your financial tracks and records.

To qualify for a second mortgage Ontario, 2^nd mortgage Ontario lenders must always check on the following key areas.

• Home Equity: You have equity when the value of your home is more than what you owe the first mortgage lender. With more equity, your chances of getting a second mortgage are higher.

• Property: The lenders will require you to specify the property that you will use as collateral in case you default payments. You must be the registered owner or future registered owner of the said property.

• Terms and conditions of the existing 1^st mortgage: If the said mortgage is in arrears, it should be paid from a new second mortgage advance.

• Property taxes: The lenders will require your confirmation that property taxes are up-to-date.  Otherwise, any arrears should be paid from the new second mortgage advance.

• Credit History: The financial institutions and credit unions will determine your financial worthiness. With a higher credit score, you qualify for a second mortgage at lower interest rates. The private lenders may review your credit score report if your loan-to-value ratio (see above) is more than 80%.

• Income Source: Usually second loan lenders do not require confirmation of income. However, in some cases, especially if your monthly payments under the existing first mortgage are too high or your loan-to-value ratio is above 80%, a proof of income may be required.

2^nd Mortgage Loan Costs in Ontario

Depending on the lender’s requirements, the costs of 2^nd Mortgage in Ontario range from 7.99% to 11.99%. In most cases, second mortgage rates are higher than the first mortgage rates due to the higher risks involved. The first lender has priority on your home (collateral) if you default on the loan.

Second Mortgage lenders may require you to pay for the service fees. Such fees include lender fees, broker fees, legal expenses, and appraisal fees. The appraisal fee is usually paid in advance during loan application while the other costs can be deducted from your second mortgage advance once it has been processed.

You can make payments every month or prepay interest for the term of the 2^nd mortgage from the mortgage advance depending on the agreed repayment plan. Most 2^nd mortgage lenders in Ontario prefer a 12-month term.  However, two or three-year terms are available, and you can get upon request.

The 2^nd mortgages are usually being prepaid in monthly payments on account of interest only.  It means that you do not require to repay the principal sum of the mortgage until the due date.  If you would like to increase your monthly payments by adding some amount towards the principal sum, it can be arranged.

If in a few months you decide to prepay the second mortgage in full, you may face or not a prepayment penalty.  The pre-payment penalty, if any, is usually much smaller compared to the one you can have under the first mortgage.

How to Choose a Second Mortgage Provider in Ontario

When looking for a 2^nd mortgage in Ontario, you ought to consider the deal that will best work for you. In a few seconds, let’s look at some of the tips that will help you choose the best 2^nd mortgage in Ontario.

• Compare the interest rates of different lenders to help you determine the one with the most favorable offers
• Get the second mortgage from other loan providers if your primary lender’s rates are no longer favorable
• Besides the interest rates, take note of other factors such as lender’s fees.

Pros and Cons of Getting a 2^nd Mortgage in Ontario

2^nd mortgage Ontario comes with numerous perks that are beneficial to the borrowers but also has some few drawbacks.

Pros

• By using your home as the collateral, there is no need for providing numerous supporting documentation such as financial statements, Notices of Assessments, pay-stubs and other documentation which is usually required by financial institutions or credit unions only.
• You can borrow higher amounts of money when you use your home as collateral compared to unsecured loans, pay-day loans, etc.
• With fixed-rate second mortgages, budgeting becomes easier
• You can use your home equity to improve your home while still staying in it
• Has lower interest rates compared to credit cards

Cons

• High risks of losing your home when you default on your payments
• Comes with additional costs such as appraisal fees, lender fees, and mortgage brokerage fees, if any

How Can I Use my Second Home Mortgage in Ontario?

With a second home mortgage Ontario, you can use the amount borrowed for various expenses including:

• Renovating or improving your home
• Consolidating other debts
• Paying for your children’s education
• Paying for wedding expenses
• Covering emergency medical bills
• Expanding your business’ financial base
• Buying a family car
• Repaying your tax areas and first mortgage
• Paying off a consumer proposal

Final Word

Once you get a second mortgage, consider spending the money wisely instead of using it for expenses that may not add value to your lifestyle. For instance, it’s worth using a second mortgage Ontario for buying an investment property rather than spending all of it on holiday vacations.