What is a second mortgage and why do you need it?
A second mortgage is a loan secured by a property that already has a mortgage on it. A second mortgage is a subordinate loan taken out while the primary loan is still in place. In the event of a default, the original mortgage would get all revenues from the liquidation of the property until it was completely paid off. Understanding the second mortgage Toronto can help you navigate your financial plans effectively.
If you default on your loan, the lending institution has the power to seize your home. A lien is placed on the portion of your home that you’ve paid off when you take out a second mortgage.
You can utilize the money from your second mortgage for nearly anything, unlike other forms of loans like auto or student loans. Second mortgage lenders also have substantially cheaper interest rates than credit card companies. As a result, they’re a good option for paying off credit card debt. The repayment process is akin to first mortgages, where you have to pay back over a specified term at a fixed interest rate.
Purpose of a second mortgage
Large purchases may necessitate the usage of a second mortgage by homeowners. Home upgrades are one of the most prevalent uses of second mortgages. Some other uses include:
- Expenses for medical treatment
- The cost of a college education.
- Paying of debts
- If your property requires major repairs, such as a new roof or the installation of solar panels.
- Home renovations to increase the resale value of your house or to upgrade your house
Types Of Second Mortgages
There are two major types of second mortgages you can choose from: a home equity loan or a home equity line of credit (HELOC).
Home Equity Loan
Your second mortgage provider provides you a percentage of your equity in cash when you take out a home equity loan. Just like your initial mortgage, you repay the loan in monthly installments with interest.
Home Equity Line Of Credit
HELOCs don’t provide you with money in one large sum. The amount of equity you have in your house determines whether or not you are approved for a line of credit. Then you can take out a loan against the credit that the lender has given you.
Thus, this was all about a second mortgage and why it may be beneficial for your financial needs.