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The Advantages and Disadvantages of 2nd Mortgages for Oakville Homeowners

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For homeowners who need to borrow a large sum of money while maintaining a reasonable interest rate, 2nd mortgages for Oakville homeowners can be a fantastic option. Whether it’s to reinvest in your home through renovations or to help pay for unexpected emergencies, a second mortgage isn’t as scary as it may seem.
 

What is a Second Mortgage?

 
A second mortgage is a loan against your home’s equity. The amount you can borrow for a second mortgage depends on the amount of equity your home currently has. To calculate this, you take the difference of your home’s value and the amount you currently have remaining on your first mortgage. The lender can provide as much as 90% of this equity, depending on other factors, such as the value of your home, credit score, and income.
 

Advantages of Second Mortgages

 
1. Large Sum of Cash and Flexibility
Unlike personal bank loans and credit cards, a second mortgage allows you to borrow a large sum of cash with the flexibility of where you invest it. Most borrowers seek out a second mortgage for investing in home renovations, debt consolidation, paying for university or college tuitions, and other large expenses that can’t be covered by conventional loans.

2. Lower Rates Compared to Unsecured Loans and Credit Cards
Since all second mortgages are secured loans, lenders consider them safer since you provide your home as collateral.  These secured loans often have lower interest with fixed interest rates, so it is good for homeowners who want to control their expenses.
 
3. Interest Is Tax Deductible
Unlike the interest you pay on a credit card, interest from a second mortgage is tax deductible. Take this into consideration when weighing out the pros and cons.
 

Disadvantages of Second Mortgages

 
1. Risking Your Home for Financing
The obvious but critical risk of a second mortgage is that you are putting your home up as collateral. If you are unable to pay back your loan, your lender has the ability to foreclose and seize your home in return. Remember, you not only have to pay for your original mortgage, but your second mortgage separately. It is important to make sure your income can cover both payments.
 
2. Interest Rates Are Higher than a Standard Mortgage
Since a first mortgage takes precedent to a secondary mortgage, the latter is considered riskier than the former. The interest for the second mortgage payments will be higher, but may still be considerably lower than a standard personal loan or credit card.
 
3. Application Fees and Closing Costs
Since you will need to have your home’s value appraised and pay for other closing costs, there are some  expenses that come with applying for 2nd mortgages in Oakville. Depending on the amount of the loan and the length of the terms, it may or may not be worth the cost. Ask your lender and appraisers for detailed quotes, so you can determine whether a second mortgage is the right option.

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