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In Canada, there are several second mortgage options available to homeowners who are looking to access their home equity:
This option involves taking out a second mortgage loan from a bank or mortgage lender, with the loan amount based on the equity in the home. Traditional second mortgages typically have higher interest rates than first mortgages.
A HELOC is a revolving line of credit that allows homeowners to borrow against their home equity as needed. HELOCs have lower interest rates than traditional second mortgages, but the interest rate is variable and can fluctuate over time.
Private lenders also offer second mortgage loans, which can be a good option for homeowners who may not qualify for a traditional second mortgage. Private second mortgages frequently come with higher interest rates and fees in comparison to their traditional counterparts.
Second mortgage rates usually exceed those of first mortgage rates, as second mortgages are perceived to carry a higher risk for lenders. Some key factors that might impact these rates are the Loan- to-Value (LTV) ratio, since lenders in Canada will typically offer loans up to a certain percentage of the property’s value, your credit score, and the type, term, and loan amount.
A second mortgage and a home equity loan are both options for homeowners to access their home equity.
However, a second mortgage is a second loan taken out against the home, using the home as collateral.
A home equity loan, on the other hand, is a lump sum loan that is taken out against the equity in the home.
Second mortgages generally have higher interest rates than home equity loans, as they are considered to be a higher risk for lenders.
Second mortgages typically have shorter repayment terms than home equity loans, with terms ranging from one to ten years. Home equity loans, on the other hand, have longer repayment terms, usually ranging from five to 30 years.
Second mortgages typically allow borrowers to access a smaller percentage of their home equity than home equity loans, which may allow borrowers to access up to 80% of their home’s value.
Learn more about second mortgage options in Canada and how they can help you access your home’s equity. Reach out to us today!