As one of the largest and fastest growing cities in Canada,
Vaughan has seen a boom in real estate values in the past few years. Many
homeowners in Vaughan are taking advantage of this increase in real estate
value by taking out second mortgages.
What Is a Second Mortgage
and How Does It Benefit the Homeowner?
A second mortgage is a second secured loan taken against the
same property as the first loan. The recent increase in Vaughan home values has
enabled homeowners to get a second mortgage against the equity in their home.
Equity is the current value of the property less any outstanding mortgage
balance against the property. The amount available to homeowners in a second
mortgage depends on the amount of equity in the home. In some cases, up to 90%
Loan-to-value (LTV) can be available. For example, if your home is appraised
and valued at $600,000 and you currently carry a first mortgage of $400,000,
with a 90% LTV, you can get a second mortgage in the amount of $140,000.
Recently, the 2014 annual
report released by the Canadian
Association of Accredited Mortgage Professionals for mortgages states that
across Canada, 11% of homeowners have taken approximately $58,000 equity out of
their homes. This equals to approximately $63
billion in the past year!
With the help of a second mortgage, homeowners have used this
equity for various purposes. Some of these include:
- Debt consolidation or repayment
- Home renovation
- To finance a small business
The most frequent use of a second mortgage is for the
purpose of high-interest debt or multiple debt consolidation. By using the
equity in the home, a homeowner can pay off a high-interest debt, such as a
credit card debt, and only have a one low-interest monthly payment. Typically,
second mortgage interest rates are much lower than credit card interest rates.
This enables you to have a better cash flow and save money.
Some of the most common reasons Vaughan homeowners take out
a second mortgage are: home repairs and renovations, upgrading the home to make
it energy efficient or just to improve the function and look of the home.
Other purposes such as education for yourself or a child and
financing of a small business can be taken care of by a second mortgage. Since
the interest rates of a second mortgage are lower than a credit card, for many
homeowners using the equity in their home ensures that they don’t overspend and
are able to manage the additional debt with just one monthly payment.
A second mortgage on your Vaughan home is an
advantageous option if you have a first mortgage that has a low interest rate,
a good amount of equity in your home, and can get a high loan-to-value ratio. This equity obtained through second mortgages can
be used for a variety of reasons and by not going with a high-interest loan, it
can help you save money in the long run.