Helping You Distinguish Between the Right and Wrong Second Mortgage
A second mortgage when done properly can be very useful. It is often used as a practical solution to overcoming debt hurdles and can help you take care of some larger expenses. At Mortgage Alliance – Main Street Mortgages we believe that not all second mortgages are created equal. That is why we bend over backwards to find the right second mortgage for you.
Why People Get a Second Mortgage
You can use a second mortgage for a variety of reasons, including:
- Reduce Interest Cost
- Debt Consolidation
- Starting or Expanding a Business
- Acquire Real Estate
- Pay Outstanding Taxes
- RRSP Top Up
Second mortgages provide you with increased flexibility. We can also 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 mortgage matures without incurring an early termination penalty, which saves you money!
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 leaving you with a feeling of being trapped due to these penalties.
But when the original mortgage agreement is no longer suitable to your current financial situation something must be done.
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. Think of it like getting out of a cell phone contract – only more painful and costly!
An Example of Leveraging a Second Mortgage
If you obtained a 5-year fixed rate mortgage when rates averaged about 4.5%-5.5%, the bank or lender could charge you a penalty equal to 1.5% to 2% of the balance of the mortgage per year, based on a current market rate averaging around 3% and 2 years left on your mortgage. In this example, it would cost roughly $1,500.00 to $2,000.00 per $100,000.00 of principal balance times the number or years remaining in your mortgage term in penalties and charges to break or payoff your mortgage early. Suppose for a moment the mortgage balance in this example was $250,000.00 with only 2 more years remaining in the term, then it would cost between $7,500.00 and $10,000.00 just to get out of the mortgage. Ever wonder why each bank make over $1 billion every 90 day? Penalties and fees such as the ones described here that ordinary Canadians like you and I are forced to pay are a big reason.
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 Mortgage 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. We can help you arrange a second mortgage of up to 85% 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 80% of the value of the property, we’re still able to arrange second mortgages for up to 85% (and in some cases up to 90%) of the appraised value of your home or condominium* (some conditions apply)
Leverage your second mortgage to take advantage of today’s low rate environment without the stiff penalties.
Getting You the Right Second Mortgage
The right mortgage varies for each individual and there are many factors that need to be considered. After analyzing your current circumstances and helping you project into the future, we can find a solution that will allow you to not only get approved for a second mortgage but will have:
- A favourable rate and lower monthly payments giving you more cash each month in your pocket
- Acceptable terms based on your priorities
- The peace of mind that you chose the best option
This is achieved by educating you on all of your options