A Second mortgage typically refers to a secured loan(Mortgage) that is in second place to another loan(1st Mortgage) against the same property.
A property can have multiple loans or liens against it.
The lien registered second is called the second mortgage. A property can have a third or even fourth mortgage, but those are much more rare. Second mortgages are called subordinate because, if the loan goes into default, the first mortgage gets paid off first before the second mortgage. Thus, second mortgages are riskier for lenders and generally come with a higher interest rate than first mortgages. In most cases, a second mortgage takes the form of a home equity loan and the two are synonymous.
The mortgage is often setup as 1 Year Term. When the 1st mortgage matures, we like to combine the 1st and 2nd mortgage together.
Sometime it does not make financial sense to get a 1st mortgage, the most common reason is:
A. Mortgage Penalty is too high - So we secure a 2nd mortgage and try to match the maturity at the same time as the 1st mortgage matures(therefore no mtg penalty).
B. Borrower does not quaily for 1st Mortgage with Bank(due to credit issues, lost job/income has changed, maritial breakup). - This will buy us more time until issues are corrected(improved credit score, found new job).
Why get a SECOND MORTGAGE:
Refinancing to consolidate high interest debts
Pay for unexpected expenses
Renovate your home
Payoff Consumer Proposal and re-establish your credit
Repay and eliminate judgments or unsettled collections
Advantages of a SECOND MORTGAGE:
It is a second position mortgage which is advantageous if you currently hold a favorably low rate first mortgage and do not want to discharge due to penalties, fees, etc.
Easier to Qualify for 2nd Mortgage
Flexibility-most second mortgages are interest only payments and 1 year terms
Up to 90% of Home Value can be used to arrange a 2nd mortgage
Borrower has many debts he wans to payoff but does not want to break mortgage(penalty too high). Also client's credit is poor at this time.
A. Income Tax Arrears $12,000 Interest Rate 12.00% $500/Month
B. Home Depot $15,000 Interest Rate 28.8% $300/Month
C. Sears $5,000 Interest Rate 28.8% $150/Month
D. Collections Item $3,000
E. Judgement $25,000
F. Mastercard $7,000 Interest Rate 12% $250/Month
G. Visa $10,000 Interest Rate 18% $250/Month
H. Consumer Proposal $25,000 $400/Month
Total Pmt: $1,850/Month
Solution: Payoff All Debts into 1 Easy Mortgage Payment. Re-establish your credit again.
New 2nd Mortgage: $75,000 Pmt: $750/Month
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