What is Second Mortgage? Know These Things before Applying.
As the name suggests, second mortgage is actually another mortgage on the property when you have already taken a primary mortgage. You may secure it against the same equity like with first mortgage. It depends on the existing value of the property and amount still owed. One can acquire it from a different lender.
Different Types
There are three types of Toronto second mortgage:
- In traditional second mortgage, there is a fixed rate, along with the term of around 15 to 30 years.
- In home equity credit, rate is adjustable and the needful can draw funds when needed.
- In home equity loan, the borrower can use the reduced equity of home as collateral.
To find out the best type of loan, be sure to talk to the mortgage broker. Such types of mortgages are available at higher rates in most cases than the rates of first mortgages. The main reason is that the lender is getting into higher risk level after taking second mortgage. The higher risk corresponds to the funds that are available to be claimed by the mortgagee, instead of the credit of homebuyer.
Risks of seeking second mortgage
In case of default, the property will be sold and the proceeds shall be applied to repayment of loan. The precedent is always taken by the primary mortgage over secondary one. Hence, it becomes important to wait for settlement of initial mortgage before claiming any proceeds left. This is why, second mortgage always bring higher risk. Along with higher interest rates, second mortgage is also available for shorter term as compared to first mortgage. Therefore, care must be taken when taking second mortgage and ensure that you can repay the mortgage on time.
To conclude, whether you are taking first or second mortgage, always weigh down the risk associated with it. Second mortgage may help you to recover from financial crisis at some extent. You can access your home’s equity with the help of second mortgage. You can also acquire it to repair or renovate your home to increase its value.