“When Should You Consider Toronto Second Mortgage Loans?”
Toronto second mortgage loans are an avenue to provide additional financing against your home property.
The use of funds can be for a debt consolidation loan, renovation and construction loans, or some other purpose.
When additional funds are going to be required, borrowers will typically try to do a home mortgage refinance to either get a larger first mortgage to replace the existing residential home mortgage or have the existing home mortgage rewritten for a larger amount.
But a 1st mortgage refinancing may not be the best and lowest cost approach for a number of reasons,
Here are some of the more common situations where second mortgage financing would be a better option for acquiring the additional capital.
- Prepayment penalties. When refinancing a first mortgage where a term interest rate is in effect, there is the possibility that the process of repaying the principal will trigger a prepayment penalty. Depending on the time remaining on the interest term, the amount of the penalty can be considerable and avoided if possible. By leaving the first mortgage as is, one strategy would be to just apply for a second mortgage to acquire the additional funds being sought. In many cases, the applicant will be able to secure a second mortgage loan at or near the interest rates available for a new first mortgage.
- Decline in Credit. When there is a decline in the credit profile of the borrower, the refinancing of the first mortgage may require the home owner to take on a higher interest rate for the new first mortgage that is above what the best available rates are in the market. If the additional capital required is less than the balance owing on the first mortgage, then it would likely be best to leave the first mortgage alone in order to take advantage of the interest rate currently in place. Even if the second mortgage needs to come from a private mortgage lender at still higher rates, the weighted average cost of borrowing between the first and second mortgages would likely be lower compared to rewriting the first mortgage at a higher rate.
When considering whether or not to apply for Toronto second mortgage loans, the best course of action you can take is to sit down with an experienced mortgage broker and work through all the different potential financing scenarios that fit your requirements and financing profile. That way you’ll be in the best position to make a decision that best meets your needs.
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