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Second Mortgages: Stuff No One Will Tell You




More than 1.91 million Canadians have a second mortgage. Despite the numbers, not many know how to make optimal use of a second mortgage. So let us take you through all the pointers with which you can arm yourself to use a second mortgage in the best possible way for your financial interest.


Second mortgages can be of various kinds: Yes, second mortgages can be in the form of rotation-based Home Equity Lines of Credits wherein you may access the equity continuously as you pay off the principal. The other kinds can be in the form of a closed second mortgage wherein the borrower can get a single lump sum of cash from his or her equity. The borrower can then make gradual payments towards the mortgage loan.


You could also use second mortgages to pay the Canadian Mortgage and Housing Corporation (CMHC) fees or what is known as the private mortgage insurance (PMI) which needs to be paid when you apply for a traditional mortgage and have not paid 20% as the down payment. If you do not have that kind of money then taking a second mortgage can prove to be more economic than getting a PMI.


Another way you can leverage your second mortgage is by making an investment. You could, for example, invest in a rental property which could generate income for you. So the interest rate and down payments to be made for second mortgages may be higher.


Second mortgages can actually help you consolidate your debt especially if you have a huge loan amount hanging by your neck. This especially helps those people who have a large sum of student loans or credit card loans to pay back. The second mortgage will provide you an easy way to pay your monthly debts. But this should be done only if you have sufficient equity in your home. The HELOC rates are also most likely to be lower than what the credit card companies charge. The downside being that you would be using the house as collateral and hence it is a risk you are taking especially if you get fired or are put on a furlough or get a life-threatening illness or injury etc. Before using home equity for debt consolidation do your calculations thoroughly or take help from mortgage brokers who can do that for you for a fee.


If you have a history of bad credit and are borrowing money to pay off that debt, then getting a second mortgage can be an uphill task. You would once again need the help of a mortgage broker as traditional lenders do not give second mortgages to those with bad credit history. You just need to find the right lender through your mortgage broker. Your mortgage broker may suggest private lenders with more flexible terms than traditional lenders.


If you are looking at investing in a second mortgage for investment purposes of debt consolidation and have doubts or trouble in doing so, you must contact LendX.

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