Second Mortgages: What You Need to Know.

General Kristin Woolard 27 Jan

Second Mortgages: What You Need to Know.

One of the biggest benefits to purchasing your own home is the ability to build equity in your property. This equity can come in handy down the line for refinancing, renovations, or taking out additional loans – such as a second mortgage.

What is a second mortgage?

First things first, a second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing a second home or property and taking out a separate mortgage for that. A second mortgage is a very different product from a traditional mortgage as you are using your existing home equity to qualify for the loan and put up in case of default. Similar to a traditional mortgage, a second mortgage will also come with its own interest rate, monthly payments, set terms, closing costs and more.

Second mortgages versus refinancing

As both refinancing your existing mortgage and taking out a second mortgage can take advantage of existing home equity, it is a good idea to look at the differences between them. Firstly, a refinance is typically only done when you’re at the end of your current mortgage term so as to avoid any penalties with refinancing the mortgage.

The purpose of refinancing is often to take advantage of a lower interest rate, change your mortgage terms or, in some cases, borrow against your home equity.

When you get a second mortgage, you are able to borrow a lump sum against the equity in your current home and can use that money for whatever purpose you see fit. You can even choose to borrow in installments through a credit line and refinance your second mortgage in the future.

What are the advantages of a second mortgage?

There are several advantages when it comes to taking out a second mortgage, including:

  • The ability to access a large loan sum (in some cases, up to 90% of your home equity) which is more than you can typically borrow on other traditional loans.
  • Better interest rate than a credit card as they are a ‘secured’ form of debt.
  • You can use the money however you see fit without any caveats.

What are the disadvantages of a second mortgage?

As always, when it comes to taking out an additional loan, there are a few things to consider:

  • Interest rates tend to be higher on a second mortgage than refinancing your mortgage.
  • Additional financial pressure from carrying a second loan and another set of monthly bills.

Before looking into any additional loans, such as a secondary mortgage (or even refinancing), be sure to speak to your DLC Mortgage Expert! Regardless of why you are considering a second mortgage, it is a good idea to get a review of your current financial situation and determine if this is the best solution before proceeding.

 

  • Written by my DLC marketing team

Construction and Pre-Construction Mortgages.

General Kristin Woolard 20 Jan

Construction and Pre-Construction Mortgages.

Building or renovating your own home is such an exciting time and allows you to create something tailored to you and your family!  But when it comes to construction mortgages, there are a few different types of loans: new construction and even pre-construction.  Let’s break it down so you can determine the best choices for you.

Construction Mortgage

Construction mortgages service both new builds and large home renovations. The purpose of a construction mortgage is to advance you the full funds for your mortgage in stages as outlined below.

These stages align with the construction process of your home (or through major renovations if you are doing an upgrade) and inspectors are required at each stage to confirm the current construction and allow for advancement of the next set of funds.

Draw Stage Required Completion Construction Stage % of Total Mortgage Advanced
1st Draw (Optional) 15% complete Excavation and foundation complete. You can also use this first draw to purchase land. 15%
2nd Draw 40% complete Roof is on, the building is weather-protected (i.e. airtight, access secured) 25%
3rd Draw 65% complete Plumbing and wiring is started, plaster/ drywall is complete, furnace installed, exterior wall cladding complete, etc. 25%
4th Draw 85% complete Kitchen cupboards installed, bathroom completed, doors have been hung, etc. 20%
5th Draw 100% complete Ready for occupancy with seasonal and exterior work completed 15%

In addition to the difference in receiving funds from a construction mortgage versus a traditional mortgage, there are a few other key differences:

  1. Home construction loans are short-term agreements with generally one-year in length while mortgages have varying terms and range anywhere from 5 to 30 years in length.
  2. Most construction loans will not penalize you for early repayment of the balance, unlike traditional mortgages which can have pre-payment penalties if not part of your agreement.
  3. Monthly payments are interest-only until the end of construction.
  4. Construction loans only charge interest on the amount of the loan used during the construction. The borrower does not have to pay interest on any unused portions. Traditional mortgages require the borrower pays interest on the entire amount of the loan.
  5. Construction loans can provide upfront funds to purchase land for your build, while traditional mortgages typically do not service land-only purchases.
  6. Any remaining costs of construction can be paid down by acquiring a mortgage on the home once it’s completed.

Note: If you are choosing to do a self-build, you will need to prove that you have enough experience to properly handle the construction from start to finish.

Keep in mind that, similar to traditional mortgages, construction loans have varying rates and terms depending on the type of property you’re building, the amount of construction and length of the construction.

Pre-Construction Mortgage

Somewhat different from a construction mortgage is a “pre-construction” mortgage. These typically apply to condominiums, townhouses and other new builds. When it comes to pre-construction condo purchases, mortgage approval is required as this tells the developer that you have the ability to finalize on the unit later.

Typically, mortgage pre-approval is required within 30-90 days of purchase but you can get mortgages as early as 2-3 years from when the project is due to be completed. In these cases, you may not necessarily be able to get a rate guarantee due to the timeframe but it is worth asking for a commitment letter if you’re seeking a mortgage closer to the final build.

Similarly with traditional mortgages, your ability to get approval for a pre-construction mortgage is determined by your credit score, income-to-debt ratio and your employment history.

Closing happens once the building has been registered and when you receive the title to your unit. However, with a pre-construction mortgage, your payments will start with the builder occupancy fees from the time of occupancy to final closing, which can be a period of 3-6 months depending on the project.

If you are looking to purchase a new build or are interesting in building your own home or renovating your current one, please be sure to reach out to your Dominion Lending Centres mortgage expert and discuss your options to ensure you’re getting the best construction loan for your project.

 

  • Written by my DLC marketing team

Early Inheritance

General Kristin Woolard 13 Jan

Early Inheritance

Everyone knows that Canada’s real estate market has seen record appreciation over the past several years. Homeowners who have been paying down their mortgage while their value has been going up are likely sitting on a large chunk of equity.

I often find myself in conversation with people who are astonished that any First Time Homebuyers are able to get into the market at all these days. With the down payment requirements it can take years of savings to bank the minimum 5% down. And by the time it is gathered young buyers could be priced out of the market.

Then there is the Stress Test that forces buyers to qualify as if their interest rate was 2.00% higher than their actual rate. It sometimes seems impossible for young people to own a home of their own.

There is an ever-increasing trend in Canada where owners sitting on large amounts of equity are tapping into it to provide a larger down payment to their adult children – kind of like giving them an early inheritance.

But with many of these older Canadians in retirement with lower incomes than they had in their working days how do they qualify under the Stress Test? They may not want to sell their home to help their children.

There is an option for owners who are 55+ that many have not considered. With a Reverse Mortgage there is no need to qualify under the Stress Test. Borrowers can access up to 55% of their home’s value for any purpose and there is no need to repay the loan until the home is sold or the borrower(s) pass away.

Interest rates are higher than traditional mortgages so it is recommended that you get a demonstration of how much interest would accumulate in the estimated time before selling and down-sizing. But if the money is used to get your loved ones into a home of their own so they can start gathering equity too, it could be well worth it!

There are only 3 institutions in Canada that provide Reverse Mortgages so ask your mortgage professional which would be the best option for you if this is something you are considering.

 

  • Written by Kristin Woolard

Selling Your Home in Winter.

General Kristin Woolard 5 Jan

Selling Your Home in Winter.

While you might think selling your home in winter is harder, with the right considerations it doesn’t have to be! When selling your home during warmer months, the focus is typically on curb appeal and gardening, as well as having bright colors and patterns to draw out different rooms.

While curb appeal should not be forgotten in winter months, the focus should be centered on creating a warm, comfortable and welcoming space. You can do this through the following:

  1. Curb Appeal – If you live in an area that receives high amounts of snow, be diligent about keeping your sidewalk and driveways clear for visitors, and to keep your home looking clean for viewing. Always make sure to sweep any fallen leaves or debris.
  2. Keep it Cozy – Ensuring your home is sufficiently heated during showings will also go a long way to making it feel more comfortable; a steady 20 to 22 degrees Celsius during showings is ideal.
  3. Light and Inviting – With days being shorter and darker during winter, ensuring your home is light and inviting can make a big difference. In some cases, you may consider repainting the walls before listing your property.
  4. Declutter – When selling, it is important to declutter your home so that it looks its best and gives room for people to imagine their own belongings in your space.
  5. Define Property Boundaries – If you are showing your home in the middle of snow season, be sure to mark the four corners of your property so that potential buyers can see exactly what they are getting.

While there is some extra work with selling your home in the winter due to the weather conditions, it can pay off! Buyers tend to be highly motivated and often there is less competition for sales during this time giving more focus to your home.

 

  • Written by my DLC Marketing Team

5 Things to Know Before Buying a Rural Property.

General Kristin Woolard 26 Dec

5 Things to Know Before Buying a Rural Property.

As cities continuing to grow bigger and busier, a rural home beyond those limits can seem like a dream come true! However, before you dive into country living, there are a few things you should know! Especially, how different it can be to qualify for a mortgage.

Buying a Rural Property

1. CHECK THE ZONING

When it comes to buying rural property, it is important to check how the property is zoned. This is vital! Zoning will determine how you are able to use the land, as well as the types of buildings that are allowed and where they can be located. Is the property zoned as “residential,” “agricultural” or perhaps “country residential”?

Zoning could affect the lenders available to you and what you qualify for, as well as what you can do with that property. Differences in lending and foreclosure processes, has caused some lenders to be hesitant with financing mortgages in agricultural/country residential zones.

2. PROPERTY BOUNDARIES

Once you have determined how a property is zoned, it is important to look at the land. Requisitioning a survey early in the process will help mark the exact boundaries of your property to avoid future disputes. This is also a good time to get an appraisal done on the land and its value.

3. CONSIDERING THE LAND AND YOUR MORTGAGE

What many borrowers don’t realize is that land has a drastic effect on mortgage qualification and what you can borrow. In fact, most lenders will mortgage: (1) house, (1) outbuilding and up to (10) acres of land. If you have a second building or extra land that is being purchased, you will need to consider additional funding on top of your typical 5% down payment.

4. WATER AND SEWAGE

When it comes to rural living, many people draw water from private wells and utilize septic tanks for sewage. To ensure everything is safe and in working order, it is a good idea to have an inspection done on the septic tank and water quality as a condition on the purchase offer. Due to the nature of these properties, be advised that inspections may cost more than it would in the city. However, it is important as lenders may request potability and flow tests!

5. COVERAGE MATTERS!

Coverage matters, especially when you are living away from the city. When it comes to rural properties, there are two types of insurance that you should consider:

  1. Home Insurance: When it comes to rural living, this can be more expensive than city homes due to the size and location of the land and distance from fire stations and hydrants.
  2. Title Insurance: This is vital for rural purchases and will protect you from unforeseen incidents with the deed or transfer. It will also alert you to any improper previous use of the property (such as dumping for waste).

If you are thinking about purchasing a home in a rural area, be sure to speak to a Dominion Lending Centres mortgage professional before you do anything. They can often recommend a realtor who specializes in rural properties and knows the area best. A DLC Mortgage professional can also help ensure you understand any differences in the mortgage process and qualifying that come with rural purchases.

 

  • Written by my DLC marketing team

Canadians are Feeling the Pinch

General Kristin Woolard 8 Nov

Canadians are Feeling the Pinch

It seems anyone I talk to these days is feeling like there is some strange energy going on in the world. With the crazy high inflation, rising interest rates and the war in Europe it seems there is no positive news to be had. And there is a lot of anxiety and uncertainty as to what will happen in the near future.

The cost of living has increased dramatically over the last year and that has left many Canadians feeling pinched trying to make ends meet. Higher grocery prices, fuel, goods and services costs it seems no matter which way you look your dollar isn’t going near as far as it used to.

Being in a rising interest rate environment it would seem this would be the worst possible time to make a change to your mortgage. But what are the implications of refinancing now for a little relief to the bottom line? Is a short-term cash flow solution worth a small penalty and higher interest costs in the interim?

While there is no one answer for everyone if you are feeling the pinch, especially with the holidays looming, it may be a good idea to have a mortgage analysis done so you can see your options.

These days paying out a mortgage with a lower interest rate means that it’s very likely that only a 3-month of interest penalty would apply. That is much lower than the Interest Rate Differential (IRD) penalty we’ve been up against for the past several years.

So, if penalty is not prohibitive then it might be prudent to consider tapping into your equity to possibly consolidate higher-interest debt (credit cards, lines of credit, loans etc.), beefing up the savings account and stretching out your amortization to lower your overall monthly expenses. Help free up some cash so you can hunker down and ride out this strange storm.

Economic experts are saying that elevated rates will remain through 2023 and into 2024 until the world has a chance to settle out. Going into a shorter term for some relief until then may be an option. I offer a free mortgage analysis, so let me help you.

A Canadian Inflation Update

General Kristin Woolard 19 Aug

Looking for an inflation update? Look no further!

DLCs Chief Economist Dr. Sherry Cooper has written a very informative article regarding our current inflation situation. If you have any questions about what this may mean for a home purchase/refinance, do not hesitate to contact one of our many qualified brokers. We are here to help!

Read on to find out what Dr. Sherry Cooper had to say ⇓

 

Canadian Inflation Slowed On Gas Price Decline, But Not Enough To Satisfy Anyone.

Gasoline Prices Dipped, But No Time To Celebrate

While we are all grateful that gasoline prices declined from record highs in July, today’s release of the July inflation data shows that the underlying inflation momentum remains too strong for comfort. Governor Macklem will likely continue to hike the policy rate aggressively when they next announce their decision on September 7th. Judging from the swaps market, traders are betting evenly on a 50 bps (0.50%) vs. 75 bps (0.75%) increase next month.

The Consumer Price Index (CPI) rose 7.6% in July from a year earlier, compared to 8.1% in June. The dip reflected the largest drop in gasoline prices since the pandemic’s beginning.

On a monthly basis, however, inflation increased 0.1% from the June reading, the seventh consecutive rise. Excluding gasoline, prices rose 6.6% y/y last month, following a 6.5% increase in June, as upward pressure on prices remained broadly based.

Consumers paid 9.2% less for gasoline in July compared with the previous month, the largest monthly decline since April 2020. Ongoing concerns related to a slowing global economy, as well as increased COVID-19 pandemic public health restrictions in China and slowing demand for gasoline in the United States, led to lower worldwide demand for crude oil, putting downward pressure on prices at the pump.

On a monthly basis, gasoline prices fell the most in Ontario (-12.2%), where the provincial government temporarily lowered the gasoline tax.

Prices for food purchased from stores increased more on a year-over-year basis in July (+9.9%) than in June (+9.4%). Prices for bakery products (+13.6%) continued to rise faster as wheat prices remained elevated. Higher input costs and global supply uncertainty related to the Russian invasion of Ukraine continued to put upward pressure on global wheat prices amid an already constrained supply.

Other food items also exhibited faster price growth, including non-alcoholic beverages (+9.5%), sugar and confectionery (+9.7%), preserved fruit and fruit preparations (+10.4%), eggs (+15.8%), fresh fruit (+11.7%), and coffee and tea (+13.8%).

On a year-over-year basis, the mortgage interest cost index (+1.7%) increased for the first time since September 2020 amid elevated bond yields and a higher interest rate environment.

Year over year, growth in other owned accommodation expenses (+9.7%) and homeowners’ replacement cost (+9.1%) slowed, reflecting current trends in many regional housing markets across Canada.

In the context of higher mortgage rates, which could lead to additional rental demand, rent increased 4.9% in July compared with the same month in 2021, following a 4.3% increase in June. Faster price growth in the rent index was largely driven by an acceleration in Ontario (+6.4%) and Alberta (+3.4%).

Bottom Line

With some luck, price pressures might be peaking. The chart above shows the Bank of Canada’s most recent forecast for inflation. The Bank of Canada estimated inflation would average about 8% through the third quarter of 2022 before slowing. Now, the estimate could be revised a bit lower this time. That is why roughly half of the market participants expect a 50-bps rate hike next month, revised down from the 75-bps figure widely expected a month ago. Either way, the prime rate is rising more rapidly than the five-year government of Canada bond yield, making fixed mortgage rates relatively more attractive than variable rates tied to prime. Regardless of which path the Bank takes at the next meeting, the Bank will stay the course for some time.

Central banks cannot return to easy money quickly without risking another burst of inflation. Even with the Canadian economy slowing sharply in the second half of this year, labour markets remain very tight, and the central Bank is behind the curve. With hindsight, we know they kept rates too low for too long, triggering excess demand, particularly in the red-hot housing sector. Watching that unwind, especially in the country’s most expensive and frothy housing markets, will be the Bank’s most prudent option.

 

  • Written by Dr. Sherry Cooper

DLCs Chief Economist, Dr. Sherry Cooper, had this response to Tiff Macklem’s recent Op-Ed

General Kristin Woolard 18 Aug

DLCs Chief Economist, Dr. Sherry Cooper, had this response to Tiff Macklem’s recent Op-Ed



Macklem’s Op-Ed (emphasis is Dr. Sherry Cooper)

National Post Comment, August 16, 2022

Inflation in Canada has come down a little, but it remains far too high. After rising rapidly to reach 8.1 per cent in June, inflation as measured by the consumer price index (CPI) was 7.6 per cent in July.

The good news is that it looks like inflation may have peaked. The price of gasoline, which has contributed about one-fifth of overall inflation in recent months, declined from an average of $2.07 a litre in June to $1.88 a litre in July. And we know gas prices at the pump have fallen further so far in August. Prices of some key agricultural commodities, like wheat, have also eased, and global shipping costs have fallen from exceptionally high levels. If these trends persist, inflation will continue to ease.

The bad news is that inflation will likely remain too high for some time. Many of the global factors that have pushed up inflation won’t go away quickly enough — supply chain disruptions continue, geopolitical tensions are high, and commodity prices remain volatile. And here at home, our economy has been running too hot. As Canadians finally enjoy a fully reopened economy, they want to buy more goods and services than our economy can produce. Businesses are having trouble keeping up with demand, and that’s leading to delays and higher prices. The result is broad-based inflation. Even if inflation came down a little in July, prices for more than half of the goods and services that make up the CPI basket are rising faster than five per cent.

As the central bank, it’s our job to control inflation and that means we need to cool things down. That’s why we have been raising interest rates since March. In July, we took the unusual step of raising the policy interest rate by a full percentage point, to 2.5 per cent. Increasing our policy rate raises borrowing costs across the economy — for things like personal loans, car loans, and mortgages. And when we increase the cost of borrowing, consumers tend to borrow and spend less and save more. We need to slow down spending to allow supply time to catch up with demand and take the steam out of inflation.

One area of the economy where it is easy to see how this works is the housing market. With higher mortgage costs, housing activity has slowed quickly after unsustainable growth during the pandemic, and housing prices are moderating. As housing slows, peoples’ spending on housing-related goods and services, such as renovations and appliances and furniture, should also slow.

To tame inflation, we need to bring overall demand in the economy into better balance with supply. Our goal is to cool the economy enough to get inflation back to the two per cent target. We don’t want to choke off demand — we want to slow its growth. That’s what we call a soft landing. By acting forcefully in raising interest rates now, we are trying to avoid the need for even higher interest rates and a sharper slowing down the road.

I know some Canadians are asking, “Why are you raising the cost of borrowing when the cost of everything is already too high?”

We recognize that for many Canadians higher interest rates will add to the difficulties they are already facing with high inflation. But it’s by raising borrowing costs in the short term that we will bring inflation down for the long term. This will ultimately be better for everyone because high inflation hurts us all. It eats away at our purchasing power and makes it difficult to plan our spending and saving decisions. It feels unfair and that erodes confidence in our economy.

The best way to protect people from high inflation is to eliminate it. That’s our job, and we are determined to do it. Tuesday’s inflation number offers a bit of relief, but unfortunately, it will take some time before inflation is back to normal. We know our job is not done yet — it won’t be done until inflation gets back to the two per cent target.

Tiff Macklem is governor of the Bank of Canada


Bottom Line

I published Macklem’s statement in its entirety to do it justice. You can decide whether you think the overnight rate will go up by 50 vs 75 bps on September 7th, but undoubtedly it will go up. It is also clear that the Bank will not cut the policy rate until inflation is at the 2% target. So don’t assume that variable mortgage rates will decline quickly in response to a slowdown in the economy. The Bank’s emphasis on the housing slowdown being an essential precursor to the reduction in overall economic activity portends an extended period of credit stringency.

This is a sea change in the economy. This is the end of a forty-year bull market in bonds triggered by the disinflationary forces of globalization, cheap emerging market labour and rapid technological advance. It is also the end of very cheap credit. Household balance sheets will feel the pinch. Recent home borrowers who benefited from the record-low mortgage rates for the two years beginning in March 2020 will increasingly feel the constraint of higher borrowing costs on their discretionary spending. Ultimately, this will return inflation to its 2% target, but it will take a while.

 

  • Written by Dr. Sherry Cooper

Chief Economist, Dominion Lending Centres

How to Save with a Variable Mortgage

General Kristin Woolard 7 Feb

How to Save with a Variable Mortgage.

When it comes to mortgages, the age-old question remains: “Should I go with a variable or fixed-rate?”. To make an informed decision, it is important to look at the type of buyer and the historical trends.

When it comes to variable versus fixed-rate, it is important to understand what these mortgages are based off of. Fixed mortgages are so named as they are based on a fixed interest rate that is set for the duration of the term with fixed payments. On the other hand, variable-rate mortgages fluctuate with the Prime Rate. This can either mean fluctuations in your payment, or if you choose to have set payments, the interest portion of the payment.

In the last 10 years, the prime lending rate has gone from 2.50% to 3.95% and now sits at 2.45% as of January 2022. Due to recent events, these rates have seen even more of a downturn providing huge benefits to new borrowers looking to pay as little as possible.

While a variable-rate mortgage is linked to the Prime Rate, which could cause fluctuations, historically the choice of a variable rate mortgage over a fixed term has allowed borrowers to save in interest costs.

However, due to the uncertainty and potential fluctuations that can occur with a variable-rate mortgage, it comes down to the borrowers comfort. Some individuals have no wiggle room in their budget for potential changes in mortgage payments, or they do not like the uncertainty. For these clients, a fixed-rate would be the best choice.

On the other hand, clients who qualify for variable-rate mortgages have a unique opportunity to take advantage of lower interest rates. If you have a variable-rate mortgage, you can either set a fixed-payment so that, if the interest rate drops, it means you are paying more on your principal loan each month. Or, if you have flexible payments, you may see your monthly payments drop in accordance to decreases in the Prime Rate. However, since every 10% increase in payment can save three years off the amortization of a five-year term, having fixed payments provide extra benefits. After all, extra pennies towards the principle can help make a difference over the life of a 25 or 30 year mortgage.

Let’s look at the following example:

Amy and Jake have a balance owing of $300,000 on their mortgage with a variable rate at Prime minus .80%, (giving us 1.65%) with current payments set at $703 bi-weekly. The mortgage matures in 24 months but they are considering locking in for a new five-year term at 3.34%. New payments would be $739. As much as they love their home, they are considering a move in the next couple years.

When reviewing this mortgage, it is more beneficial for them to keep the remaining variable-rate in place for two years. However, if they set the payments based on 3.34% or $739 bi-weekly, this allows them to pay an extra $72 on their mortgage per month. In 24 months, the savings on interest is $4,000 and their outstanding balance is $4,000 less than by staying in the fixed rate.

Another benefit to variable-rate mortgages is that, if you choose to sell before the mortgage term is up, the penalty is typically only three months interest as opposed to much heavier interest rate differential (IRD) calculations used to determine fixed-rate mortgage penalties.

With this strategy they don’t have to feel pressure to lock-in today, plus they can continue taking advantage of the lower variable rate.

If your mortgage is maturing in the next 90-180 days and you’re not quite sure what to do, it is a good idea to contact a Dominion Lending Centres Mortgage Professional. Not only can they provide tips for your existing variable-rate mortgage to help save you money, but they can help you assess whether fixed-rate is right for you or if you should make the switch.

 

  • Written by my DLC Marketing Team

 

To talk more about if a variable rate will be right for you, head over here and contact me anytime!

Second Mortgages: What You Need to Know.

General Kristin Woolard 13 Jan

Second Mortgages: What You Need to Know.

One of the biggest benefits to purchasing your own home is the ability to build equity in your property. This equity can come in handy down the line for refinancing, renovations, or taking out additional loans – such as a second mortgage.

What is a second mortgage?

First things first, a second mortgage refers to an additional or secondary loan taken out on a property for which you already have a mortgage. This is not the same as purchasing a second home or property and taking out a separate mortgage for that. A second mortgage is a very different product from a traditional mortgage as you are using your existing home equity to qualify for the loan and put up in case of default. Similar to a traditional mortgage, a second mortgage will also come with its own interest rate, monthly payments, set terms, closing costs and more.

Second mortgages versus refinancing

As both refinancing your existing mortgage and taking out a second mortgage can take advantage of existing home equity, it is a good idea to look at the differences between them. Firstly, a refinance is typically only done when you’re at the end of your current mortgage term so as to avoid any penalties with refinancing the mortgage.

The purpose of refinancing is often to take advantage of a lower interest rate, change your mortgage terms or, in some cases, borrow against your home equity.

When you get a second mortgage, you are able to borrow a lump sum against the equity in your current home and can use that money for whatever purpose you see fit. You can even choose to borrow in installments through a credit line and refinance your second mortgage in the future.

What are the advantages of a second mortgage?

There are several advantages when it comes to taking out a second mortgage, including:

  • The ability to access a large loan sum (in some cases, up to 90% of your home equity) which is more than you can typically borrow on other traditional loans.
  • Better interest rate than a credit card as they are a ‘secured’ form of debt.
  • You can use the money however you see fit without any caveats.

What are the disadvantages of a second mortgage?

As always, when it comes to taking out an additional loan, there are a few things to consider:

  • Interest rates tend to be higher on a second mortgage than refinancing your mortgage.
  • Additional financial pressure from carrying a second loan and another set of monthly bills.

Before looking into any additional loans, such as a secondary mortgage (or even refinancing), be sure to speak to your DLC Mortgage Expert! Regardless of why you are considering a second mortgage, it is a good idea to get a review of your current financial situation and determine if this is the best solution before proceeding.

 

  • Written by my DLC marketing team
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