Qualify for Second Mortgages in Toronto
A second mortgage, which, as the name suggests, is a
secondary loan in addition to your initial mortgage based on the equity you
have built up within your home. In order to qualify for second mortgages in
Toronto, you will need to ensure you have five checkpoints covered before
getting into signing an agreement with your prospective lender.
One of the most important factors in order to
qualify for a second mortgage will be your home’s equity. Equity is calculated
by taking your home’s current market value and subtracting the amount you
currently owe from your original mortgage. Remember, you can only borrow what
you already own, so the amount you are able to acquire is dependent on the
amount of equity you have available.
If you’ve ever wondered why everyone around you encourages
you to start building a good credit score, this is a great example of how being
consistent can help you down the road. A credit score ranges from 300 to 850,
with most traditional banks considering anything below 650 as an unfavourable
candidate. Your credit score is calculated by third party groups that analyze
your payment history for loans and lines of credit to determine your risk
factor. The higher your credit score, the more favourable terms and interest
rates your potential lenders will likely offer you. Fear not if your credit
score isn’t picture perfect. You can still qualify for a second mortgage if the
rest of your application appears promising. If your credit score is a concern,
bring it up with your financial advisor so that they can walk you through your
different options and answer questions in detail.
Stable and consistent employment is another factor
that adds appeal and confidence for a candidate seeking second mortgages in
Toronto. The more time you've spent consistently employed and the longer you’ve
been with your most recent employer will provide potential lenders the reassurance
that you are a good candidate to invest in. Timing is key, so consider booking
appointments with various lenders (starting with your current mortgage lender)
once you have established yourself at your workplace and are able to
demonstrate a steady source of income.
Similar to a standard mortgage, second mortgage
lenders will require you to provide paperwork such as a proof-of-employment,
bank statements and a social insurance number. Ask your potential lenders what
documents they will require to submit an application, so that you can get
organized and have all the appropriate details sorted through.
Costs and Application Fees
Unlike personal loans or traditional lines of
credit, there are additional fees or "closing costs” associated with a second
mortgage. For example, since the amount you are able to borrow is dependent on
your home’s equity, lenders will require a professional appraisal of your home
to ensure that the market value is accurate and up to date. Other fees can
include legal fees and title insurance/search. It is important to take the time
to create a budget and sit down with a trusted mortgage lender to ensure that you
understand all the costs associated with obtaining second mortgages in Toronto.