A second mortgage can offer a practical solution to overcoming debt hurdles and help you take care of some larger expenses.
You can use a second mortgage for a variety of reasons, including:
- Debt Consolidation
- Investment
- Renovation
- Starting or Expanding a Business
- Acquire Real Estate
- Taxes
- RRSP Top Up
Second mortgages provide your with flexibility and your can structure it to mature at the same time as your first or existing mortgage. This will allow you to consolidate both mortgages when the first matures without incurring an early termination penalty.
When Refinancing Isn’t an Option
You may prefer to take advantage of current low rates to reduce interest expense by refinancing; however, you may be subject to high penalties if you were to break your existing mortgage early.
These penalties can range in the thousands (even tens of thousands) of dollars.
Despite the fact that the original mortgage agreement may not be suitable to your current financial situation, you may feel trapped due to these penalties and not be able to benefit from refinancing to a lower interest rate.
The mortgage penalties give the financial institutions the right to charge you the interest you would have paid if you continued to maintain the original mortgage agreement. This is more common with fixed rate mortgages where the rate that you agreed to originally is higher than the rate that is currently available in the marketplace.
Example,
If you obtained a 5-year fixed rate mortgage three years ago when rates averaged about 5.5%-6%, the bank or lender could charge you a penalty equal to 1.5% to 2% of the balance of the mortgage, based on current market with rates averaging around 4% and 2 years left on your mortgage.
With most closed term mortgages, the lender or financial institution has the right to charge you a penalty if you discharge the mortgage prior to maturity. While the penalty calculations vary from lender to lender, it is usually the greater of three months simple interest or the Interest Rate Differential (IRD), which over the past several years has become more common and in most cases, they tend to be prohibitively high.
An Alternative to Refinancing
A second mortgage is an excellent way to avoid a refinancing penalty and gain access to the equity built up in your home or condominium.
Your Mortgage Professional with Mortgage Alliance – Main Street Mortgages can help you arrange a second mortgage up to 90% of the appraised value of your home.
Despite the recently announced changes to limit the amount of equity that Canadians can take out of their homes to 85% of the value of the property, we’re still able to arrange second mortgages for up to 90% of the appraised value of your home or condominium*
Let us help you arrange a second mortgage to take advantage of today’s low rate environment without the stiff penalties.
For your FREE, NO OBLIGATIONS consultation, contact a Mortgage Professional at Mortgage Alliance – Main Street Mortgages, 1-877-226-4810.
