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Archive for the ‘second mortgage’ Category

There are a lot of misconceptions about second mortgages. It seems to me that there is a negative stigmatism attached to second mortgages. I’m not sure why this association exists but I believe it is because they are misunderstood.

Second mortgages serve to offer home owners another option from refinancing their existing mortgage. They are extremely beneficial in this way in that they can allow a home owner to leverage money from their home without paying the penalties to break their first mortgage. There are two kinds of second mortgages: A fixed rate second mortgage in which the rate is predetermined and the term and amortization are fixed. Second mortgages also come in the form of a secured line of credit. Any loan, be it fixed or revolving (such as a line of credit) which is secured by your home and takes a secondary position to your original (1st mortgage) is considered to be a second mortgage.

The negativity that is often associated with second mortgages is generally unfounded. Second mortgages can offer a consumer the option to borrow money against their home without having to pay penalties to rewrite/break their first mortgage. Second mortgages also come in the form of a line of credit which can be used for specific things such as home renovations but can also be used in the event of unforeseen circumstances such as an expensive car repair bill. Second mortgages can be used to consolidate high interest credit card debt, to renovate your property and can be useful for expenses you did not anticipate.

In some instances they can even be used to avoid or circumvent mortgage insurance premiums. In Canada, generally on any purchase where you are putting less than 20% down on a home you will be forced to pay mortgage insurance, which is added to your loan. Quite often this can amount to thousands of dollars. Second mortgages can be used to avoid these premiums. For example, you have 15% to put down on the new home you wish to purchase but face a large insurance premium because you were unable to save 20%. Taking a secured line of credit out for 5% of the value of the home can be used to make up the difference and gets you to 20% allowing you to bypass the insurance premiums. They can also be helpful in this circumstance if you are not eligible to qualify for mortgage insurance because you have poor credit.

Any which way you slice it, the negative connotation that is often attached to second mortgages is often just because people don’t understand them or the potential benefits. Before you discard the idea of securing a second mortgage give us a call so we can help you determine if one is right for your set of circumstances. Call toll free: 1-866-668-6570 for a no obligation quote.