How to Refinance Your Second Mortgage in Toronto
A second mortgage is an unsecured lien against a home that is subordinate to another mortgage or loan secured by the home. Also known as second lien holders, this second mortgage then follows the first mortgage in line. This means that second mortgages usually carry a higher interest rate and therefore come with an even higher cost for banks than first mortgages do.
The primary difference between the two types of mortgages is in the terms. A second mortgage has a lower initial interest rate, but may not be as flexible as a first mortgage might be in terms of a change in interest rates. It does not have the same rights as a first mortgage does, and does not pay off the debt. The second is typically used for larger purchases, such as home improvements or to provide financial aid for school or college.
Unlike a first mortgage, where payments can be set by the homeowner and can include any income, a second mortgage can be paid off over time. The second mortgage has a fixed interest rate. This means the second loan is tied to the first, which means that if the original mortgage is paid down, then so too will the interest rates on the second loan. In most cases, this second loan will also come with additional costs, such as a balloon payment that will require the borrower to make a lump sum payment before the interest rate ever rises again. These additional costs can often be found with a second mortgage broker.
Since there is no security required by the second loan, banks and other lenders will typically not give you a second mortgage without a cosigner or collateral to back up the loan. However, you may be able to get a second mortgage by refinancing the first one.
If your current mortgage is at a fixed interest rate, you may qualify for a second mortgage with a lower interest rate. If the interest rate on your first mortgage was determined to be high, you may be able to qualify for a second loan with a lower interest rate. You may also be able to qualify for a second loan with an adjustable interest rate. If you are planning to refinance, always check with a professional mortgage broker, who may be able to assist you with all aspects of the process.
Refinancing for a second mortgage involves more work because the lender will need to review all of the documents associated with the original loan, such as credit reports and tax returns, before approving second mortgage loans. If your first loan has a balloon amount, this can also be reviewed and the amount determined. In some instances, if the interest rate on your first mortgage is higher than the current interest rate, your lender may be willing to allow a balloon payment at the end of the refinance process to allow you to pay off the debt with the lower interest rate and the same amount of money you took out for the mortgage in the beginning.
Another consideration for second mortgages is the fact that lenders will often require you to pay closing costs on your second loan. They may also require that you keep a certain amount of cash on hand or put your second mortgage on hold while waiting to complete the paperwork associated with the original loan. Depending on the terms of the original loan, these costs can be as little as a few dollars or as much as several hundred dollars per month.
There are many mortgage brokers on the market today who are qualified to assist you with the paperwork associated with refinancing your second mortgage in Toronto. Mortgage brokers are also qualified to help you make the decision to take out the loan or to refinance your current mortgage. They will also help you find the best mortgage terms available to you. These are some of the important points to consider when choosing a second loan or refinancing your first mortgage.