There are many that believe a private second mortgage is only a form of bad credit mortgage, mostly used as a debt consolidation or home equity loan.
And while this is a very common application for a Toronto private 2nd mortgage, there are other benefits to consider from this source of second mortgage financing.
First, a private mortgage almost by definition, is a form of bridge financing where the term of use is typically no more than a year. If there is a need to get a bridge loan into place faster than what may be possible through a bank or institutional lender, then a private second can be an excellent solution to the borrowers requirements.
Even if time is not an issue, you may not be able to meet all the bank requirements for a bank second mortgage, such as the debt servicing requirements. If the need for cash is truly short term in nature, then it may make more sense to pay the additional costs associated with private money than for go some opportunity or incur greater costs by not having the necessary cash on hand when required.
Second, if your residential home mortgage in first mortgage position is provided by a lender that does not issue second mortgages, it may be far more costly to do a mortgage refinance than just leaving the first mortgage along and acquiring a private second mortgage to provide the additional funds required.
Third, a Toronto private second mortgage would likely only have interest only payments, which on a monthly cash flow basis, may end up being cheaper than a fully amortized mortgage that will require both principal and interest payments.
One of the challenges with private seconds in the market is that there can be a wide range of potential pricing in terms of rates and fees for any given property.
In order to get the best Toronto private second mortgage options available to you at any given point in time, the best approach would be to work with an experienced Toronto mortgage broker who has access to private lending sources that provide second mortgages in the area where you’re property is located.
A private 2nd mortgage is typically required because of the need for fast cash, bad credit, or some combination of the two.
The most common form of short term bridge loan or bad credit mortgage is a private second mortgage.
The reason for requiring the funds for a private second are basically limitless and without restriction. A private 2nd is effectively a home equity loan that will typically be for a one year term with an option to renew in some cases.
Probably the most common utilization of a Toronto private second mortgage is in the form of a debt consolidation loan where it makes sense not to do a mortgage refinance of the first mortgage in order to maintain its interest rate, but still provide added funds through a higher priced private mortgage to pay down still higher credit card balances or other short term debts that can’t be covered off or services with the existing cash flow.
Even for people with good credit, its not uncommon for them to utilize a private 2nd mortgage to finance renovation and construction loans due to the speed in which they can be put in place and the more straight forward and predictable draw administration process of a private lender compared to that of a bank or institutional lender.
The main thing to remember about a Toronto private second mortgage is that it is a short term bridge financing solution that basically buys you time to either generate enough cash flow to pay down the mortgage balance or improve your financial and credit profile to a point where you can secure a lower cost financing solution with a bank or institutional mortgage lender.
If you’re in need of a Toronto private second mortgage or would like to better understand all your potential residential home mortgage options, we recommend that you give us a call and book a time to speak with a member of our team and receive an immediate free assessment of your options.