Mortgages help people purchase the home of their dreams. They provide borrowers with the finances they lack and aid people through the home buying process. However, sometimes people need more than what one loan can provide.
Second mortgages can be very beneficial for borrowers. They can be used to pay back a number of debts, and help lighten a borrower’s load. If you are seeking a second mortgage, here is everything you need to know.
About Second Mortgages and Its Uses
A second mortgage loan is essentially a second loan obtained against your property that has previously been, or is actually, mortgaged. The second mortgage may be either a home equity line of credit (HELOC) or a home equity loan, depending on the needs of the borrower, and may be used by the borrower for a variety of different purposes.
Your second mortgage can be arranged in two ways, either a stand-alone mortgage or a piggyback mortgage.
The distinction between the two is that a stand-alone mortgage is opened after the first home equity loan, but a piggyback second mortgage is generated at the same time as the primary loan. For a piggyback loan, all loans would have to be paid out at the same time, which is not ideal.
Second Mortgages can also be taken in lump amounts, where you get a lump amount of money that you can use for anything you want.
Irrespective of the structure you use, a second mortgage can be very helpful if it is used under the right conditions and can also save your finances.
Application Process For A Second Mortgage
The application process for a mortgage varies based on the financial provider. However, with the required documentation, a good credit score and history, and a good mortgage broker, getting approved for a mortgage loan can be a relatively easy task.
In order to get approved for a second mortgage in Canada, lenders require appropriate paperwork. Lenders require proof of employment and/or additional sources of income to verify you can repay the mortgage.
Once a lender is satisfied with the borrower, they will move onto the next step of the mortgage process and settle your second mortgage’s rates.
Requirements for Second Mortgages
In order to qualify for a second mortgage in Canada, you need to meet a few simple requirements.
The borrower is expected to have a credit score of at least 620, although some individual loan criteria could be higher than that, to qualify for a second mortgage. Higher scores tend to correspond with better rates and can help you get a decent second mortgage.
The borrower is typically expected to have a certain debt-to-income ratio, usually less than 43%. This ensures you can pay back the loan.
With the right credit score and ideal credit history, getting a second mortgage shouldn’t be a problem. However, if you are facing serious financial issues and don’t have an ideal credit score, you should consider a lender that caters to your needs.
Freedom Capital is a unique mortgage brokerage in Canada that caters to borrowers outside the traditional lending box. If the banks said no, or if you are facing difficulties and delays with your second mortgage, contact us at Freedom Capital today!