Second Mortgages
Second mortgages offer a valuable opportunity for homeowners to unlock equity from their home, in a non-traditional way. If you currently have a first mortgage in place but need access to funds and are not able to refinance through traditional means, then a second mortgage may be an option to consider.
Benefits of a Second Mortgage
Second mortgages, while often associated with higher interest rates than first mortgages, do offer several benefits:
Easy Approvals
Most second mortgage lenders are focusing on the equity in your home when deciding whether to approve your application. If you have 20% or more equity in your home today, you may be able to qualify, regardless of your credit score or your income source.
Debt Consolidation
By leveraging the funds from a second mortgage, you can pay off high-interest debts like credit cards and loans, potentially saving you money in the long term.
Lower Monthly Payments
Many second mortgages allow for interest-only payments, minimizing your monthly financial obligations and providing flexibility in managing your cash flow.
Open Mortgage Terms
A lot of second mortgages allow the flexibility of an open mortgage term, allowing you to pay it off at any time without pre-payment penalties, giving you control over your finances.
Flexible Use of Funds
Whether you're renovating your home, need some funds for a short period, or dealing with unexpected expenses, a second mortgage provides the flexibility to use the funds as needed.
Our Second Mortgage Solutions
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Example of a Second Mortgage
Family has a home valued at $650,000 and owes $385,000 on a first mortgage at an interest rate of 3.19% with a big Canadian bank. It does not come up for renewal until November 2026. Their family has grown over the last 3-years with the addition of two children, and the decision was made that mom would not be returning to work until 2026, when the first mortgage would be renewing and their youngest would be starting day care. The only problem – since mom would not be returning to work for another 2 years, their application for refinance of their first mortgage was declined by their bank, due to extended debt service ratios (given that they only had the one income at the time).
They had accumulated about $77,000 in credit card debts and high interest loans. That alone was costing the family $2,123/month in payments. When we did the math on the debt, the average interest rate came out to 26.40%.
They felt trapped and didn’t think they had any solutions until they reached out to Dave and his team.
Second Mortgage Solution:
New second mortgage: $81,000
(Paying off the $77,000 in high-interest debts and covering $4,000 in lawyer costs and lender set-up costs)
Interest rate: 11.99%
Monthly payment: $809
Immediate payment savings of: $1,314/month
Dave was able to get a second mortgage lender to approve the file and overlook the fact that the clients only had one source of income for the next 2 years. The reason for this, was the clients had over 40% ($265,000) of equity in their home before applying for the second mortgage. The second mortgage lender felt comfortable lending on this file because there would still be almost 30% equity ($184,000) in the home after funding. The lender agreed to the second mortgage being on an OPEN term, so that if mom went back to work early, they would likely get approved for a refinance from the first mortgage lender and pay back the second mortgage.
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