What Homeowners Should Consider Before Going for a Second Mortgage
A second mortgage is a better option for homeowners who have short-term financial needs. They may use the mortgage as a means of generating the much-needed cash for a variety of purposes. However, you need to consider some key factors before you even think about a second mortgage.
The possible challenges
You must know the possible challenges that might come with the mortgage. For instance, you should determine the amount of equity that will be lost as a result of the mortgage. A second mortgage financing can be affected by balloon payments. A balloon payment is a colossal amount of upfront liquidation required by some mortgage brokers. Determine whether the mortgage you want has such payments. You should also be in a position to identify the foreclosure risks of the mortgage.
You need to determine whether the second mortgage will go against your home equity. Take for example, you have a home value of $300,000 and the existing mortgage balance is $250,000, and you secure a loan of $130,000, your home equity will be $120,000. If you do not use the loan for home improvements and decide to sell the home later, you will have no equity left after paying the agent and other parties involved in the sale.
The purpose of the mortgage
The purpose of the mortgage should be something that brings value to the house, such as home improvements. The improvements can include adding a new kitchen, redoing the bathroom or finishing the basement. Do not borrow against your home equity to buy a car or go for a holiday.
Determine whether you need a loan or a line credit
Most banks offer mortgages that do not have flexible terms. However, they have alternatives such as lines of credit that work like a credit card. You need to examine your financial situation and see whether it is worth it to put your house on the line for a second mortgage. Also, determine whether the amount you need can be obtained through a line of credit.
Do not just settle for one Canadian mortgage company just because it is near your place of residence. Take some time and shop around. Look for the cheapest rates in town and don’t waste a moment to make a move. Let your regular bank’s credit officer not take advantage just because you did not look around. You can use online resources to check for the best rates.
Consider short-term mortgages
Use second mortgages as short-term financial solutions. You don’t want to pay higher interests rates coupled with severe penalties for a long time. If there are no any other option available, ask your credit officer to know exactly what you are getting yourself into. You can learn more by visiting Canadian Mortgage Services.