Many homeowners are vaguely aware of the fact that you can take out a second mortgage on your home. You hear your friends mention it, or perhaps a family member close to you, has gone through the process. But do you truly know what it means to take out a second mortgage? We can do a mortgage-analysis for you if you are looking at this as an option. We have also taken all the questions we get asked about second mortgages and compiled it into four key points.
A Second Mortgage is based on the equity in your home. The total loan amount that the second mortgage lender will offer you will depend on the equity that has been built up in your home. Second mortgages allow you to access up to 75% of the equity you have in your property or even 80% on acceptance. For instance:
- House Value: $850,000
- 75% LTV (Loan to Value) = $637,500
- First Mortgage: $500,000
- Amount available through a Second mortgage: $137,500
Interest Rates will vary and be higher than your first mortgage. This is because when a lender agrees to a second mortgage, they are taking a higher risk as they get second priority in case of default. With that being said, we have options and solutions such as working with Private lenders that can help you obtain a reduced rate and the right product for your mortgage situation. Typically you can expect an interest rate of 6.95% to 19.95% with lender and broker fees included.
Your payment can be as low as interest only payments. One of the advantages of selecting to use a second mortgage, is the fact that the payments are attractive. You can pay interest only payments or you can also select to pay the interest plus the principle loan amount. You can work with your mortgage broker to discuss options and what would work best with your situation.
There are additional fees to consider. Since we want to have you understand ALL the fees associated, it is important to know that setting up a second mortgage will require you to pay: *Note that these dollar amounts are approximations*
- An appraisal fee to assess the value of your home: $350
- Legal fees to set it up: $2,000
- Lender & Broker fees: 1 – 5%
Second mortgages are a great option for many and may be a better solution than a refinance or a Home Equity Loan (HELOC). If you are interested in learning more or want to find out if a second mortgage is right for you, contact us. We can guide you through the process from start to finish!
Original Article: www.dominionlending.ca/news