The difference between who will provide a first mortgage and who will provide a second mortgage financing is all about risk.
For instance, most bank and tier one institutional lenders will consider providing a second mortgage to their own customers that already have a mortgage in place on the property. In this scenario, the lender is still in control of the security and is still lending within their risk comfort zone in terms of the overall debt being carried by the borrower and the property.
At the same time, “A” type lenders will not always be willing to provide a second mortgage behind another lenders first mortgage. This is more commonly provided by second tier banks, trust companies, and private mortgage lending sources.
Any time you have a second mortgage position with two different lenders involved, there is more risk in managing the account as each lender is going to look after their own interest.
To allow for the added risk can be added cost, which is why private second mortgage offerings are the primary lending vehicle for private lenders. For higher risk scenarios, a private lender is basically offering a home equity loan in second position.
For borrowers with good credit, income, and equity, the decision making process is when to use a second mortgage, versus doing a home mortgage refinance, versus applying for a home equity line of credit.
The mortgage strategy you choose should be one where the numbers work out in your favor and the terms and conditions of the mortgage fit with your financial plans.
For instance, if you need to secure additional mortgage funding against your home, a second mortgage may be the best option if the prepayment penalty to refinance the first mortgage will be too high, and if you intend to pay back the incremental funds required slowly over a long period of time. Faster repayment may lend more to a secured or unsecured line of credit.
So identifying when Toronto second mortgage lenders may be the best fit for you starts with what you already have in place with respect to mortgage financing, what your financial and credit profile look like, and what your short term and long term financial planning goals are.
The best way to identify Toronto second mortgage lenders that are a good fit for a given scenario is to work through an experienced mortgage broker who can work through your requirements with you and provider relevant mortgage financing options for your consideration.