Second Mortgages on Ottawa Homes Explained

Second Mortgages Explained

A mortgage is a loan against the equity in your home. Many of those who reside in Canada's capital have one, and even often a second mortgage on their home. The rank of the mortgages on a home in Ottawa 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.
Many instances when a homeowner may find it necessary to take out a second mortgage are as follows: 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 it.
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.

Advantages 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.

Other 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 lender in Ottawa who can spell out the advantages of second mortgages or other solutions – and for how much you qualify. 
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