Taking out a Toronto second mortgage can be a good option for homeowners who are looking to tap into the equity in their home to use on debt consolidation, home renovations, or major other major life events. There are requirements that you will need to meet and it’s best to speak with a mortgage broker to see if this is the right choice for you. Today, we’ll go over the facts of taking out a second mortgage to get a better understanding of what is involved.
What Is A Second Mortgage?
Second mortgages are secured loans that are leveraged against the equity of your home. They are sometimes referred to as home equity loans. To figure out how much equity your home has, you need to determine the difference between the value of your home and the amount still owed on your mortgage. Let’s say the value of your home is $500,000 and you owe $250,000 on your mortgage. Your home equity amount would be $250,000. A second mortgage will have fixed monthly payments, a rate of interest, and a mortgage term.
Requirements to Qualify For a Second Mortgage
When qualifying for a second mortgage the requirements are much less than when you took out your first mortgage. Unlike your first mortgage, a second mortgage does not require you to go through a stress test, or have an excellent credit score rating or even require you to have proof of income that is because you can be approved based on the amount of equity you have built up in your home. Although having a decent credit history, proof of income that is sustainable will help with obtaining the best possible rate for your second mortgage, it is not a requirement for your approval.
The Maximum That You Can Take Out
A second mortgage allows you to access up to a maximum of 90% of your home’s market appraisal value, so for a $500,000 appraised home the maximum amount would be $450,000. Lenders use a closed loan-to-value ratio to determine the amount you can qualify for. The CLTV takes the balance of your current mortgage, adds in the loan amount you are looking for, and then divides this figure using the CLTV. For example, your first mortgage is $250,000 and you are in need of $100,000 and your appraisal value is $500,000 then you would be looking at a 70% CLTV. ($250,000 + $100,000 / $500,000 = 70%)
Who You Can Get a Second Mortgage From
Some homeowners are under the impression that their second mortgage needs to be done through their current lender. This isn’t true though! You can use a mortgage broker to shop for the best second mortgage package for you. Some homeowners will sometimes take out a second mortgage to get a lower rate, term, or payment schedule on their existing high-interest debts they are paying monthly. By doing so they are able to save hundreds and even thousands of dollars by consolidating their high-interest monthly debt payments such as; credit cards, personal loans, payday loans, car/auto loan, into one simple low monthly payment provided by a second mortgage.
A $65,000 second mortgage can help you with lowering your monthly high interest debt by giving you low monthly payments of $490 a month.
Need More Information
There are many options to look at and a Toronto second mortgage is something that should be beneficial to your needs. This is why it’s important to speak to the professionals to cover all questions. If you are looking to take out a Toronto second mortgage, now is the time to give us a call or apply online today!