Advantages of Second Mortgages
Whether or not you should take out a second mortgage
on your Markham house depends on your current and projected financial
situation. A second mortgage can be a useful tool in achieving certain financial
objectives – but it is a step that should only be taken after careful study.
The obvious positive result of a second mortgage
is that it gives you a large pool of cash. In one stroke you may be able to
cover the higher education costs of your children. It can also be the means by
which you can undertake home repairs or renovation. You could pay off any
arrears you have on your first mortgage or taxes. It is also a method of
consolidating personal debt – using the equity you have in your home as
leverage; or you may simply have emergency expenses you need to cover quickly.
Second mortgages – because they are secured by your
home equity – have relatively low rates of interest, especially when compared
to unsecured methods of borrowing. In certain circumstances, payments can be
tax deductible, though not in same comforting way the US enjoys. However, if
you use your home for self-employed work purposes, you may be able to deduct
some of your mortgage
as a business expense.
The amount you can borrow with a second mortgage is
not unlimited, and depends on how much equity you have built in your home. For
example, if your home is valued at $500,000, and your first mortgage is
$300,000 that leaves equity of $200,000. It is possible to place a second
mortgage on up to 90% of that higher amount, or the equivalent of $180,000.
Cons of a Second Mortgage
A second mortgage means more debt. However, that can
be balanced by the fact that you may also be in fact lessening your debt load,
if you’re applying that money or some of it against other loans – such as
credit cards payments – that are at a higher rate of interest.
The recent woes of the United States housing market
are an important reminder of the dangers of too much debt
Too many Americans mortgaged their homes to the hilt and then, when housing
prices fell, found themselves holding much more debt than they were worth – or
could pay. Mortgage payments were defaulted, and banks foreclosed on hundreds
of thousands of homes.
There are more safeguards in Canada, but it is wise to
be prudent, and to deal with a reputable mortgage broker.
the Perfect Broker
Find a mortgage broker you can trust. A good way to start is to go online on the Financial Consumer Agency of Canada website. FCAC’s site contains much useful information on mortgages and loans
and even has a section called ‘Mortgage 101’, that will ground you in the
basics. Then, search locally for a reputable broker for second mortgages in
Markham. Look for a company that offers a wide range of mortgage services and
then, together, decide if a second mortgage is the right financial tool for