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Second Mortgages
Aug 20, 2015

3 Top Second Mortgage Options in GTA

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Second mortgages are great options when it comes to debt consolidation, paying for a childs education, or even paying for the down payment required for the first mortgage. Here are the three top second mortgage options in the greater Toronto area.

Option #1 – A Traditional Second Mortgage

Most people who take out second mortgages in Kitchener go the traditional route, which involves going back to the original lender and asking for another loan. As long as these people have good credit and the ability to repay their loans, they generally have few issues. Conversely, people who have limited or damaged credit have trouble obtaining traditional second mortgages due to the increased risk assumed by the lender.

In this case, the second mortgage has a structure much like the first. The homeowner borrows an amount based on the equity in the home, and then repays this amount, along with fixed interest, over a period of 15 to 30 years. If you meet credit and income requirements, you can usually qualify for a second mortgage when the loan-to-value ratio reaches about 85% or less of the appraised value of the home. If you do not qualify for a Toronto second mortgage through your original lender, contact a private lender to review your options.

Option #2 – Home Equity Line of Credit

Another option that may be available to you is a home equity line of credit. This adjustable rate loan provides you with a line of credit comparable to a credit card. You can borrow as little or as much as you need, then repay that amount plus interest over time. You will get a fixed rate for a short period, but this converts to an adjustable rate mortgage after that time is up.

A home equity line of credit appeals to individuals who have paid quite a bit on their mortgages or who put a great deal of money down. This money is essentially "collateral" on the loan, so it becomes accessible once you meet the basic requirements. Not everyone qualifies for this type of loan, though. If you need money but you do not have enough equity in your home, private second mortgages may help.

Option #3 – Piggyback Second Mortgages

Traditional lenders rarely provide piggyback second mortgages, and it is typically only available to new homebuyers. These mortgages apply only to the amount of the down payment when the homeowner cannot afford the traditional 10% to 20% down plus closing costs. A piggyback mortgage might come from the original lender or from a different source, such as a private lender.

Another reason why new homebuyers choose to take out piggyback mortgages has to do with the higher interest rates that are associated with larger home loans. Above a certain point, banks charge more interest to help mitigate the risks. Piggyback loans divide one large loan into two smaller ones, helping homebuyers avoid the excessive interest charges. Not everyone will qualify.

There are several different options for second mortgages in Kitchener, and you should choose the one that most closely matches your unique needs and situation. New homebuyers may find piggyback loans to their advantage, whereas individuals who want to consolidate debt fair better with traditional or home equity loans.