Thousands of home owners across Canada benefit from a second mortgage on their home. This great financial tool allows them to take loans at great terms and interest rates for the big and important expenses, which otherwise may have been out of their reach. If you are thinking of taking out a second mortgage, it is a good idea to learn more about these kinds of mortgages and the process involved. You should also be acquainted with the conditions for second mortgage to find out if it fits your requirement, if you are eligible for taking out such a loan and what to expect when you approach lenders for the mortgage.
To take out a second mortgage, you need to own some equity in your home. If your owned equity is lesser than 20% in the home, you would find it difficult to get a second mortgage on good terms from a large lender. You may have to seek out this loan from private lenders. On the other hand, if you have significant equity built up in your house, most lenders would be happy to offer you a second mortgage at good interest rates and terms. This is because second mortgages are loans secured by an immovable and appreciating asset, which makes them much less riskier than many other types of loans. The interest rates offered on second mortgages are also more attractive compared to unsecured personal loans.
The second most important of the conditions for second mortgage is whether your financial situation is good enough for you take up repayments of the new loan on a regular basis. This is the reason why lenders seek from second mortgage borrowers the proof of their income and its stability. Home owners with unverifiable, variable or uncertain income are likely to find taking out a second mortgage difficult. Lenders in this case may either reject the application or offer the mortgage at high interest rates, unless you are able to prove your ability to repay the loan satisfactorily.
All lenders verify the past credit record of the prospective borrowers. This is done to ascertain that there are no impending large debts or recent cases of big defaults, which may be an impediment in repaying the new loan. A bad credit history or behavior also indicates that you are a high risk borrower and have a higher likelihood of defaulting compared to prospective buyers with good credit record. The repayment pattern of your first mortgage will also be assessed and regularity displayed there would be beneficial in getting good rates on the second mortgage.
Home owners can get second mortgages equivalent to or less than the market value of the equity they hold in their home. An appraisal of the home is required to be done by an approved appraiser and submitted along with the second mortgage loan application. The lender may also wish to conduct a separate appraisal in some cases. If you have managed your finances well in the past and have significant home equity, the conditions for second mortgage will be easily met, and you can avail of the mortgage at attractive terms.