The phrase "second mortgage” is often thrown around, but many Vaughan
homeowners do not know exactly what it means. Second mortgages are a large
financial decision, but can be used for great things when chosen wisely.
Getting a second mortgage is not as simple as a first mortgage, which most homebuyers
easily secure when first investing in real estate. It is important to know what
a second mortgage is, specifically in a city such as Vaughan where there are
newer real estate opportunities and many young working class families.
Simply put, a second mortgage is a second loan against the value of a home.
Just like a first mortgage, persons seek out a sum of moneys from a lender, who
in return gets a hold on the home. However, the lender of the first mortgage
has priority over the second lender on the home. This means that if the homeowner
was to fall behind on their agreed payments for the initial mortgage and the
house was to be repossessed, the ownership of the home would go to the initial
lender and not the secondary one. For this reason, interest rates on secondary
mortgages are typically higher than that of first ones.
Think of a second mortgage like an additional line of credit. Instead of basing
the credit on factors such as employment or savings, the credit is based on the
value of your home. Most lending companies will give up to 90% of the value of
the home, subtracting all the debts owing on it. So if your home is worth
$600,000, and you’ve used $450,000 of that money on your first mortgage, in
theory a lending company will lend you up to $90,000 with interest. This is a
great deal for homeowners who have had their homes for many years and have very
little to pay off on their first mortgage, as they will be able to access a
great deal of money.
Why a Second Mortgage
There are many reasons why people choose to seek out a second mortgage. Second
mortgages are a great way to consolidate debt: instead of paying off multiple
credit cards and loans, a single payment can be made instead. Second mortgages
can make things like house renovations possible for many who could not afford
the cost otherwise. This could add additional value to the house and make
selling the property much easier. In addition, second mortgages can be used as an
emergency fund, something that most average families do not have. Unexpected
health costs can financially destroy a family and can ruin many other plans.
University or college costs can be paid with a second mortgage, with an
interest rate much lower than standard government or bank student loans. If
used correctly, a second mortgage can be a good financial idea.
Like all financial decisions, it is important to read the fine print. A second
mortgage in Vaughan can be a great financial decision or a quick way to go
farther into debt, depending on the homeowner’s situation. It is important to
consider all the pros and cons of a second mortgage and understand how they
work. A home in Vaughan can offer a large second mortgage if a homeowner needs