How to Find the Best Second Mortgage for Your Situation
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In some cases, second mortgages can save you from potential financial disasters. In others, a second mortgage can actually create a disaster. Here is some information about how to find the best second mortgage for your unique situation, as well as an alternative that you should consider.
Facts about Toronto Second Mortgages
Just like your first mortgage that you took out to buy your home, a second mortgage is a loan from a lending institution like a bank. Often, you will obtain your second mortgage from the same lender as your first since your home is already collateral for that lender. In almost all cases, regardless of your credit and repayment history, second mortgages come with larger fees and much higher interest rates due to the increased risk imposed on the lender. The best way to make sure you’re getting a great deal is to compare rates with numerous lenders, but if you have poor credit, your options may be a bit limited.
Toronto Second Mortgage with Bad Credit
If your credit history has taken a turn for the worse since you got your first mortgage, you might be a little hard-pressed to find a lender that is willing to provide a second. However, private lenders will often work with you as much as they can. First, you have to consider that your home is already collateral to another lender – whomever provided you with your first mortgage. This means that another lender cannot legally accept your home as collateral in most cases. In some situations, a private lender will need to actually “buy” the loan from the primary lender and then add a second mortgage on top of it. This means that your combined payments go to the private lender each and every month.
Second mortgages come with some significant risks. If you fail to make your payments on either mortgage, your lender can foreclose on your home. Fortunately, there are some other options that might be more financially feasible for you.
- Home equity loan – The equity in your home is the difference between the value of your home and the amount left on your mortgage. If your home is valued at $150,000 and you owe $50,000 on your mortgage, then you have up to $100,000 in equity you can borrow against at a relatively low interest rate.
- Home equity line of credit – Whereas a home equity loan is a lump sum of cash that you repay over time, a home equity line of credit uses the equity in your home like a credit card. You borrow what you need when you need it.
- Mortgage refinancing – If your high-interest mortgage is making it difficult for you to find the cash you need on a day-to-day basis, refinancing might be better than taking out a second mortgage. You might be surprised to learn just how much you can save per month with a great refinancing deal.
As you can see, there are different ways to obtain lump sums of cash when you need it most. Second mortgages are generally reserved for emergency situations or for when you have little to no equity in your home. Private lenders can work with you if you have bad credit to find solutions.