A second mortgage is a loan registered in second place under a primary mortgage. This is registered as security on title on any properties that you take out a loan again.
As expected, the interest rate on the second mortgage is higher than the first mortgage due to the it being in second position as having collateral on your property. In case of a default, the first mortgage will get priority. All the liquidation proceeds would go to the first mortgage on a priority basis. After that, the second mortgage is paid.
However, a second mortgage can be essential source of income to fund different aspects of one’s life like children’s education, marriage, business investments, and more.
If you are a citizen of Canada, you may want to have a clear understanding of second mortgage guidelines in Canada.
Let’s start with the basics:
Different Types of Second Mortgages
Second Mortgages take the form of a HELOC (home equity line of credit) and a Home Equity Loan.
In the case of HELOC (home equity line of credit), the borrower’s home equity acts as the collateral in a transaction. A lender agrees to lend an amount based on the property’s equity value (house). Most lenders allow you to access 75-80 % of your home equity while processing second mortgages. This type of loan requires you to have enough income to service this type of loan.
Conversely, a home equity loan allows you to access a lump sum amount by keeping your home as collateral. But, as compared to HELOC, home equity loans have fixed interest rates. Also, you need to make a regular payment cycle, while HELOC comes with a variable payment option.
Second Mortgage Loan Limits
The major metric that decides your borrowing limit is the Loan to Value ratio. This determines the value of your property that a lender is willing to finance. In Canada, Credit Unions, Banks, or Mortgage companies allow you to borrow up to 80% of your home’s value. The more your home’s appreciation, the more the loan you can avail as a second mortgage.
What are the Qualifications for Second Mortgage?
Usually, lending institutions look for essential borrower qualifications like income limit, property value, credit score, and more.
Let’s understand these in detail:
- Income: You have to show your bank account statements to determine if you can repay the loan. Or Employment letters.
- Credit Score: A credit score of 620 is a minimum to analyze the creditworthiness of an individual.
- Equity Value: The financial institutions will evaluate the equity value of your home—the more the value of your property, the better your chances of receiving higher loans.
Average Approval Time
There is no fixed approval time for a second mortgage in Canada. It varies from government to private institutions. Government regulations can take a while, whereas private players can process your second mortgage quicker.
Second Mortgage Costs
Typically, your second mortgage costs can be higher than your first mortgage costs. It can be either fixed or variable. Specifically, you may have to pay a higher price for title insurance fees, legal fees, title search fees, and appraisal fees in Canada.
Company for Second Mortgage Canada – Freedom Capital
Freedom Capital is a renowned private lending firm based in Ontario, Alberta, and British Columbia. We provide personalized and professional services for obtaining a second mortgage —no waiting time for processing your application. Our professionals are here to help you 24*7