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Home» Alberta Lending » What is a Second Mortgage?

What is a Second Mortgage?

Posted by Dave Fitzpatrick - August 26, 2019 - Alberta Lending

A second mortgage is a home equity loan that allows homeowners to borrow money from the equity in their home, without refinancing their current mortgage.

It’s simply another mortgage on your home – a loan secured against the property. The term “second” indicates that the loan does not have priority on your home in case you default. Instead, your first mortgage has priority and would be paid before any funds go towards the second mortgage.

Related Article – 2nd Mortgages for Western Canada

“Equity“ is the difference between the balance of your original mortgage and the value of your home. For instance, if your home is worth $250,000 and your mortgage balance is $200,000, you have $50,000 in home equity.

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A key feature regarding these mortgages are that lenders often will overlook things like blemished credit or unique property types, AS LONG AS there is sufficient equity in the property being used as security.

Common uses for second mortgages can include cash take-out for home renovations, vehicle purchases, tuition for the kids, consolidation of credit card debts, pay property or income taxes, or make investments. Other examples of situations where taking a 2nd mortgage utilizing home equity can make sense when a client`s bank turns them down –images00

-To pay arrears on current 1st mortgage,

-Borrower had a Prior Bankruptcy or Prior Foreclosure,

-Self-Employed, but haven`t been for long enough to establish a track record, or unemployed, 

-Credit issues in general – Accounts in collections or no established credit at all,

-Inject capital into a business.

Some people use second mortgages for other uses – and sometimes they are not wise uses. It can be tempting to tap a large source of money with a second mortgage, but you have to remember that you’re borrowing against your home. In some cases, though, a second mortgage is the only way to pay for a need.

Alberta Home Equity Loans

Second mortgages have slightly higher rates than senior mortgage rates. This is because the second mortgage won’t be paid until the first one is (in the event of a default). Because the loan is riskier than a plain-vanilla mortgage, the rate is higher. However, the rate may be lower than alternative sources like credit cards.

Taking out a second mortgage involves an additional monthly payment. Analyze your monthly expenses and obligations before applying for another loan to ensure that you will be able to handle the new payment.calculator

If you know you would like to take equity out of your home, but are not sure if a second mortgage is the right choice, speak to me about refinancing your first mortgage and getting cash back as part of the transaction. This option enables you to have only one monthly payment, and you may save money because rates on traditional mortgages are often lower than on an equity loan. Apply online or contact me.

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