A mortgage is a loan against the equity in your home.
Many residents of Canada’s capital have one and often a second mortgage on
their Ottawa home. The rank of the mortgages on a home is determined by the
date on which the homeowner borrowed the money. That rank then determines the
order in which these mortgages are paid out. This, in turn, affects the
interest rates of the mortgages, with the subsequent mortgages being "riskier”
and therefore coming at a higher interest rate.
There are many instances when a homeowner may find it
necessary to take out a second mortgage: an emergency of some sort, pressing
home renovations, and a desire to start a business. A second mortgage
can supply a lump sum that can be applied against new obligations or goals. The
amount available depends on how much equity you have in your home. This is
calculated by taking the value of your home and subtracting the debts against
One mortgage broker provides this example. A house is
valued at $500,000. The broker is able to provide financing of up to 90% of
this value, or the equivalent of $450,000. However, the debts must be
subtracted. So if there is a $300,000 first mortgage, then the amount available
for a second mortgage can range up to $150,000.
of Second Mortgages
The advantage is, as mentioned, that you receive a
lump sum that you can use for financial objectives. A second mortgage is also a
way to consolidate multiple debts, using the equity of your home. If you have
additional debts from credit cards and personal loans, this could save you a
lot of money, as the interest rate on a second mortgage interest rate is
usually less – sometimes much less – than that charged for cards and loans.
The disadvantage of a second mortgage is simply that
it is more debt. Although it can be
used to reduce debt load from cards or loans, it is an ongoing financial
obligation. And, because it is against your home equity, failure to pay could
result in foreclosure.
Options for Raising Capital
There are other options available, and they include a
Home Equity Line of Credit, which works essentially like a credit card debt,
only based on your equity in your home. Another possibility is to refinance your home
by altering the terms of your original mortgage.
These are all very serious decisions; your home is the
focus of your life and you should not regard it as a cash cow.
The Central Mortgage and Housing
Corporation offers a number of suggestions should you
find yourself in a financially difficult situation. The primary one is to talk
to your lender and ensure that your financial picture is clear. Get informed about
the options available to you – including those listed above. And find a qualified mortgage
in Ottawa who can spell out the advantages of second
mortgages or other solutions – and for how much you qualify.