26 May 2020 Second Mortgages
What Is a Private Second Mortgage?
A second mortgage is a collateral home loan taken out by the homeowner ahead of completely paying off their first mortgage. A second mortgage allows homeowners to borrow money from the equity in their home, without refinancing their current mortgage. Using your home as collateral, you can obtain funds to finance projects, consolidate debts, and major purchases.
When borrowers are unable to qualify for a second mortgage with banks or institutional lenders, private lenders offer alternative mortgage opportunities with greater accessibility. Often borrowers are declined by banks due to credit scores, high loan-to-value, or income. With a private second mortgage, lenders place greater emphasis on the equity and value of a borrower’s home rather than credit scores or incomes.
Private mortgage lenders are typically private companies or individuals willing to provide short-term, interest-only first or second mortgages. Canadians requiring second mortgages with credit scores below 600 will likely resort to private lenders to obtain financing. Unlike Canada’s banks, private mortgage lenders are not regulated by the Bank of Canada, which allows them to set their own rates and qualification standards. As a result, borrowers with poor credit scores can receive the financing they require, though often at a higher interest rate.
Qualifying for a Private Second Mortgage in Canada
When assessing a second mortgage candidate, Canadian private lenders generally focus on four primary qualification areas:
Applying for a Private Second Mortgage in Canada
Determining where to apply for your second mortgage first requires you to understand your credit score. This will establish what type of lender you will qualify with.
Other scenarios where private mortgage lenders may be your best route for a second mortgage include:
Should you fit into any of the above scenarios, or have a credit score below 600, applying for a private second mortgage is generally straightforward. You will need the following documents and information to get started on your application: