Getting a second mortgage remains as one of the best financial solutions for homeowners who are at a financial bind and need funds. Not everyone has a stash of savings in their bank and when a huge expense comes by, it is comforting to know that you can use your home equity to gain access to some money.
A second mortgage is an additional loan that you take on your house when you still have a primary mortgage to take care of. It is taken with another mortgage lender and is paid separately from the primary mortgage. Know that a second mortgage does not erase or cancel out a primary mortgage; rather, it is a separate loan.
How Does It Work?
A second mortgage allows you access to funds from your home equity. This is because this type of mortgage loan uses your home equity as collateral. This type of mortgage loan is riskier for the lender and can be risky for the borrower too if the borrower fails to pay.
How Does One Qualify for a Second Mortgage?
Lenders for second mortgages tend to look more at a person’s home equity value than that person’s credit score or income. It is important to know what percentage or value you have in your home equity before applying for this type of mortgage loan.
How to Pay for a Second Mortgage?
Most lenders have terms that last a year or two wherein they only require the borrower to meet the interest-only payment. After this period, the borrower is required to pay the full amount. If the borrower cannot do so, there is an option to get a new second mortgage or extend the loan for another term.
Is it Possible to Get a Second Mortgage Even with Bad Credit?
The short answer is yes. Many lenders will have no issues with providing second mortgages to people with bad credit including those who got turned down elsewhere or who have filed for bankruptcy. The tricky part is finding these understanding private lenders and connecting with them so that you can apply for a second mortgage.
Why Are Second Mortgage Interest Rates Higher Than Primary Mortgages?
The primary reason for this is because this type of mortgage loan carries more risks for the lenders. They risk losing their money if the borrower is unable to pay because the first priority for payment goes to the primary mortgage lender.
Applying for this type of mortgage loan follows a set procedure wherever you may be in Canada. There are no shortcuts. You need to provide the required information and show that you have enough home equity to qualify. Aside from this, you need to find the right lender that will be understanding of your situation.