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What is a 2nd mortgage?
A second mortgage is a mortgage taken after a first, or primary mortgage is in place, without removing or altering the terms of the first mortgage.
A second mortgage is a common way of financing when the property owner has available equity in the property. A second mortgage can either be a home equity line of credit or a private mortgage. In both cases the property owner’s home is used as security and in the event of default, the first mortgage will be paid before the second mortgage.
What can a 2nd mortgage be used for?
Buy a New House
In some occasions, when you buy a new house (to live or to rent as an investment property), the sum of you down payment and your 1st mortgage won’t cover the total cost of the property. In these cases, a 2nd mortgage is a very powerful solution to cover the difference and allow you to buy the house you are looking for.
Let’s see an example: You want to buy a house whose value is CAD 500,000. You have a down payment of CAD 75,000 (15%) and your 1st mortgage lender offers you CAD 375,000 (75%). Therefore, you still need CAD 50,000 (10%) to cover the full cost of the house. That’s where a 2nd mortgage come in to cover that difference and allows you to buy the house.
Home Equity Take Out (ETO)
Home equity is basically the difference between all existing mortgages and the appraised value of the property. Hence, when you have a 1st mortgage, home equity take out is the process of taking money out from your home in cash through a 2nd mortgage, in order to use that money for any financial need you have.
ETO can be used to meet a variety of financial
*Goals, including:
*Home improvement
*Payoff more expensive debt
*Unexpected expenses
*Invest
*Etc
Refinance an existing 2nd Mortgage
Refinancing a mortgage means paying off an existing mortgage and replacing it with a new one.
There are many reasons why homeowners
*Refinance an existing mortgage:
*To obtain a lower interest rate
*To shorten the term of their mortgage
*To convert from an adjustable-rate mortgage
*(ARM) to a fixed-rate mortgage, or vice versa
*To tap into home equity to raise funds to deal with
*a financial emergency, finance a large purchase, or consolidate debt
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