How does a Second Mortgage work?

In basic terms, it is a secondary loan registered on title in second position (or priority) to the main mortgage. Most people have heard of a home equity line of credit (HELOC), which can also be considered a second mortgage. 

Is it easy to qualify for a Second Mortgage?
Many homeowners have built equity in their home as a result of appreciation over recent years. As a result, qualifying for a second mortgage has become a little easier over time. A home owner’s personal income or credit history are always important factors but in this case, the available home equity is a major consideration.

What is the maximum amount someone can qualify for with a second mortgage?
Most Lenders will usually lend up to 90% of the home value. The easy math to figure this out is as follows:

· Find out your homes current market value

· Now simply multiply it be .90

· Then subtract this value from the balance you owe on your first mortgage.

Here’s an example using a home valued at one million dollars with a $400k balance remaining on the first mortgage:

·  $1,000,000 x .90 = $900,000

·  Less $400,000 owing in first mortgage = $500,000

· This $500k amount can be assigned as a second mortgage. 

Are second mortgage rates and terms the same as first mortgage rates?
As this is a secondary loan, the risk to the lender is higher and therefore most lenders rates are higher than standard mortgage rates.  Second mortgage rates vary from lender to lender and is best to compare through your broker.  I have seen rate variations of 3% to 4% for the same for the same client from different lenders. Another thing to note is the term of the second mortgage is typically shorter than a standard mortgage.  Most second mortgage are offered in 3 months to 12 month terms as a closed mortgage term.

Is it worth it to apply for a second mortgage?
This all depends on the clients personal or family situation.  Most of my clients going this route are usually trying to improve an important part of their lifestyle and for the betterment rather than purchasing an indulgence.  I always say, use a second mortgage or home equity line of credit for things that improve your life.  Some of these improvements include: 

· home renovations that benefit your entire family and grow the value of your home

· property investment with a rental opportunity to provide you positive cash flow

· improving your education to enter a better paying career

· personal health and medical to enhance your own lifestyle

Anytime you borrow money from any lender, you need to carefully compare the pros and cons to know all your options for the application process along with related repayment options.  My goal is to work with you to provide peace-of-mind and a full understanding so that you are in control the entire way.  With all the things we have going on in life, a loan payment should not create any unwanted tension, rather it should be setup in an easy to navigate manner.  Feel free to connect with me for any mortgage or secondary loan inquires.

All the best,

Sukh Sangha