A second mortgage is a mortgage that is placed on a property that already has a first mortgage on it. A property may have multiple mortgages on it, and they are named in the order in which they are placed on the property. When a property is sold, the mortgages must be paid off in the same order they were placed on the property. If a property with three mortgages is sold, the first mortgage is paid off, then the second, then the third. For mortgage lenders, a second mortgage is considered riskier because if the sales price is not enough to fully pay the first and second mortgages, the first mortgage will be paid first and the second mortgage lender will take a loss. For this reason, second mortgages in Hamilton and across Ontario are considered high-risk investments and will carry higher rates than first mortgages.
Most lenders throughout Ontario can lend up to 75% of the value of the property. Most alternative lenders in Hamilton can provide second mortgages, but they vary on lending criteria and costs. The major Canadian banks carry the lowest interest rates but have the most stringent approval criteria. Credit unions and trust companies offer slightly higher rates than banks but have more lenient criteria. Private lenders have the most lenient approval criteria but also the highest rates and fees.
Why Apply for a Second Mortgage?
A second mortgage is a simple and easy way to get a hold of emergency financing. The money you get from a mortgage can be used in any way you’d like. While the interest rates for second mortgages are greater than those of first mortgages, they are lower than credit card rates.
This means that you can use a second mortgage to pay off more expensive credit card debts and personal loans. You can use the money to make all your debt payments and improve your credit score. With a better credit score, you can qualify for cheaper loans in the future.
The main sources of second mortgages are non-bank lenders, which includes trust companies and private lenders. These lenders have different criteria than banks do.
- Equity in the Property: In terms of real estate, equity refers to the difference between the total mortgages on the property and the value of the property. When applying for the mortgage, the proposed mortgage is counted in the equity calculation.
- Location of the property: Generally lenders prefer to lend in larger, more established cities. If the property is in a larger city (more than 100,000 people) you can expect lower rates and more lenient lending criteria.
- Credit Score: Most larger alternative lenders, which include trust companies and credit unions require a fair credit score. The score requirement is typically around 100 points less than the bank requirements. You can still get a mortgage with a private lender if you have bad credit, but expect to pay more.
- Income: Most lenders like to see that the borrower is capable of making all mortgage payments. You can still get a private lender to provide a mortgage with low income, but they will charge higher rates and fees.
About the Different Kinds of Second Mortgage Lenders
While banks are the most common providers of first mortgages, they do not provide second mortgages. Alternative mortgage lenders exist to provide these kinds of mortgages when the banks cannot. Trust companies and credit unions offer the best non-bank rates and have more lenient lending criteria. With a trust company or credit union, you can expect to pay between 4.5% and 7% in interest every month. Private lenders are typically wealthy individuals who earn money by investing in mortgages. Private lenders can take on the riskiest deals, but charge the most at 7% to 12% in interest.
About Mortgage Agents and brokers
Since it can be hard to find information on all the different second mortgage lenders, you may want the services of a Hamilton mortgage broker or agent. Many second mortgage lenders do not advertise to the public and only provide mortgage through brokers. Using a mortgage broker that specializes in second mortgages can save you both time and money. A mortgage broker can help you shop around for a mortgage and present you with the best offers from various lenders. The team at Mortgage Broker Store has over a decade of experience in providing second mortgages in Hamilton and across Ontario. You can contact their team directly at 416-499-2122 or at ron@mortgagebrokerstore.com.
