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Second Mortgages in Canada


With the way things are in Canada at the moment , you may find yourself in a tough situation where the bills are piling up, the bank won't extend that lined of credit, you may need to pay off high interest credit cards or you may simply want to have a cushion just in case your one of the unlucky ones who loses their job. Regardless of the reason why're looking at taking out a second mortgage in Canada, there are opportunities to secure terrific interest rates and terms.

Second mortgages involve taking another loan out against your property. In the event the property needs to be sold to recover any funds, the the first mortgage lender will get paid out first. As a result, second mortgages are considered to be much riskier. Second mortgages are different then any kind of refinancing that you can do with your current home loan. When you refinance, you're effectively renegotiating the terms of your initial mortgage, however, with a second mortgage you are borrowing against the equity you've built up in your property. The opportunity of a second mortgage can open up many doors to your financial freedom and it can get a little confusing, so let’s look at the difference between a first mortgage and a second mortgage.
First vs Second Mortgages in Canada

When you first found your home in Canada, you needed to apply for a mortgage. This loan took into context the purchase price and the value of the property and if the purchase amount of the home was less than that value, you could not take additional money out from the loan. This is different with a second mortgage. If the price of the home was less than what the home was valued at, then you have equity built into the home. This is good. In addition, as you make your monthly payments, a certain amount of the payment will go towards interest and some will go towards principal. Principal is the other name for equity as the more principal that is paid, the more you own your home from the bank. Taking out a second mortgage on your home will tap into that equity. Your lender will look at a variety of different things to find out whether you will qualify for a second mortgage on your home. In some cases, it may be more difficult to obtain the second mortgage than it was for the initial home loan.
Reasons to take out a second mortgage

The second mortgage can be used for a multitude of different reasons. You will have the ability to take some of the equity to pay off other debts allowing for more money in your pocket at the end of the month. You can also use the money for home improvements, vacations, or to pad your bank account. To obtain the second mortgage on your Canadian home, you will need to prove that you can repay the loan and the majority of lenders will do a credit check. There are additional qualifications in which your lender will discuss with you. Remember, each situation is different. What is meant by that is that dependant on the loan amount, credit and available equity there is the possibility that you will not qualify for a second mortgage in Canada.

It is important to know that if you are looking for a small amount of money, the second mortgage may not be the way to go as many lenders will have a minimum amount that they can lend on the value of your home. Much like many other parts of the world, the Canadian mortgage industry has changed gradually over the last several years. However, the Canadian market has not seen as much devastation on the housing market as the United States has. The positive thing is that seeing the possibility that there is the potential for the same catastrophic situation, Canada has taken the steps to assist in the mortgage market. Several months back, the CMHC pledged money to assist in the bailout of foreclosed properties. This allowed the financial institutions to free up additional monies to loan for new mortgages as well as for second mortgages. There was the added bonus that this government bailout could reduce the amount of foreclosures in Canada.

Understand that taking out a second mortgage on your home is a large responsibility. You will need to make monthly payments in order to rebuild the equity in your home. Also, understand that this is not a quick fix and it is not for everybody. You will need to make sure that you can financially handle the payments and that this is a situation in which there is no other means to take care of matters. Also, be sure to only take out what you can afford to repay. You cannot take out a third mortgage. In order to use the available equity in your home again, you will need to payoff either the first or the second mortgage. This will replenish the equity in the home.

Regardless of your reasons and needs, it always helps to have a good relationship with your mortgage broker or lender. You need to know that he or she is working in your best interests and explaining the loan possibilities and terms to you. This will assist you in making a qualified decision. You will need to insure that you have all of the information and that you are comfortable with the legalities of the loan. Also, remember that if you fail to payoff the second mortgage, the bank can foreclose on your home, but typically this is an absolute last resort.

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