Second Mortgages in Ajax, Whitby, and Vaughan
When a homeowner places a mortgage on a property with an existing first mortgage, that new mortgage is called a second mortgage. In order to get a second mortgage in Ajax, Whitby or Vaughan you must own a piece of real estate such as a house, a condo, or a townhouse. A property may have multiple mortgages registered against it. This type of mortgage is also sometimes called a home equity loan, as the homeowner is borrowing using the equity in the property. In terms of a mortgage, the equity is equal to the value of the property minus the value of all debts secured against it. Second mortgages are considered to be riskier for lenders than first mortgages, and usually, have higher interest rates than first mortgages.
Reasons to get a second mortgage
Second mortgages are usually more expensive than first mortgages, but less expensive than credit cards and other forms of personal debt. Taking out a second mortgage is a good option for people who need a large sum of money at affordable rates. Popular uses of second mortgage money include:
Assisting family during an emergency
Investing in a business
Paying tuition fees
Most people use second mortgages as short-term loans with a typical mortgage term of one year. Many people also opt to pay interest only, which reduces the monthly amount.
About Private Mortgage Lenders
Most banks cannot offer second mortgages since they consider them to be too risky. To fill the demand for this type of financing many private mortgage lenders in Ontario specialize in providing second mortgages. These lenders are companies or individuals with money to invest and are not subject to the same regulations that govern banks. These lenders can overlook factors such as credit score and income and will focus on the equity in the property. Private lenders also work much faster than banks do. For a typical mortgage, a lender can finalize the mortgage in 2-3 weeks whereas a bank can take several months. This makes private lenders an attractive option for people faced by time constraints.
Approval For Second Mortgages
Since most private lenders offer approval based on equity, many lenders can quickly determine over the phone whether or not you can get approval for a mortgage. The lender will calculate a metric called a Loan to Value (LTV) ratio which will help them measure the risk posed by an investment. To get a property's LTV ratio, you must divide the value of debts secured against a property by the appraised value of the property. For an example home worth $100,000 with an $80,000 first mortgage, the LTV ratio is 80%. For most lenders in Ontario, 80% LTV is the upper limit to qualify for a second mortgage. Generally, the higher the LTV ratio, the greater the chance that the lender will lose money on the sale of the property. Additionally, lenders will often have stricter LTV requirements for properties located in smaller cities and towns, as the lower demand for real estate means that a property can take a long time to sell.
How Can a Mortgage Broker Help?
There are hundreds of private lenders across Ontario, and it can be difficult to find the best one to suit your needs. A licensed mortgage broker in Ontario can quickly analyze your situation and identify the best private lenders. The mortgage broker can streamline the process of applying with the different lenders and can help you select amongst several different offers from lenders. If looking for a broker for the purpose of getting a second mortgage, it is important to find a mortgage broker that specializes in private financing. Most brokers focus on specific mortgage types such as first mortgages, second mortgage, commercial mortgages and bad credit mortgages.