19 Aug 2020 Second Mortgages
What Is a Second Mortgage?
A second mortgage is a collateral home loan taken out by a 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 finance major purchases.
What’s the Difference Between a Private and Bank Second Mortgage?
Second mortgage borrowers may be declined by Canadian banks due to credit scores, high loan-to-value, lack of income, or various other reasons. In Toronto and across Canada, if borrowers are declined by banks or institutional lenders, private lenders offer alternative opportunities for a second mortgage with greater accessibility. 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. Toronto residents 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.
Getting a Second Mortgage in Toronto
Borrowers in Toronto and the GTA have the benefit of high home values and a favourable housing market which results in an abundance of lending options. For any collateral loan, such as a second mortgage, lenders prefer dealing with large urban areas and cities, such as Toronto. The high property values and competitive housing market help mitigate the lender’s risk should a borrower default on their second mortgage.
As a result, Toronto borrowers have a distinct advantage in obtaining a second mortgage. Their higher relative home values allow greater flexibility in borrowing capacity and the abundance of lenders working within Toronto creates more competitive interest rates.
Qualifying for a Private Second Mortgage in Toronto
When assessing a second mortgage candidate, Canadian private lenders generally focus on four primary qualification areas:
Applying for a Private Second Mortgage in Toronto
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:
Rateco provides second mortgages throughout Toronto, the GTA, and Ontario. We’ve partnered with all levels of lenders, from big 5 Canadian banks to private lenders and institutions. This helps ensure we’re able to provide second mortgages to all those in need of financing throughout the Greater Toronto Area.
Rateco’s unique auction format guarantees borrowers get the lowest rate on their second mortgage as lenders are forced to compete on interest rates, fees, and terms to obtain the mortgage.