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How To Get Approved By Second Mortgage Lenders In Toronto

Second Mortgage TorontoAre you among the 31% of Canadians who believe they have too much debt? Or, are you thinking about home renovation–but are daunted by the five-figure cost estimate?

Whether you need to pay down debt, renovate a house, or deal with a financial emergency, a second mortgage might be the right solution. If you’re a homeowner in Ontario, second mortgage lenders in Toronto may be able to help.

A second mortgage is a loan the homeowner takes out against the equity of a house. While a primary mortgage is a loan to pay for the house itself, a second mortgage can be used to pay for anything. Second mortgage rates can be fixed or variable.

Technically a second mortgage is a lien. Many Toronto homeowners have discovered that a second mortgage is less risky than they feared–and it solved stressful financial problems.

A Second Mortgage Guide For Homeowners In Toronto

Second mortgage lenders in Toronto have cleared up a lot of misconceptions for Ontario homeowners. Many second mortgage lenders have gotten Canadians approved for low-interest loans, even when they were afraid they wouldn’t qualify.

In this guide, we’ll walk through exactly how to get approved for a second mortgage in Toronto, Ontario. We’ll also explore the different reasons homeowners take out a second mortgage, and we’ll look at how those reasons can impact financing options.

Why Get A Second Mortgage In Toronto?

A second mortgage is a low-interest loan that can grant the homeowner a lot of liquid capital. This loan is sometimes abbreviated as 2nd mortgage.

Typically, with a second mortgage, you can get a loan equal to 90% of the value of your house. Second mortgage lenders have even helped Toronto residents get approved for loans up to 90% of their homes’ value.

However, the remaining cost of your first mortgage will be subtracted from your second mortgage. This ensures that the outstanding balance on your two mortgages is never higher than 90% of your house’s total value.

Because a second mortgage can be used to pay for almost anything, homeowners have a variety of reasons to apply for these loans.

Feel free to pursue a second mortgage for any financial need. The five most common reasons, though, take advantage of the second mortgage’s low interest rate.

Home Renovation

Home Renovation Second Mortgage TorontoHome renovation is a long-term investment in the value of your home. But a homeowner may not be able to swing the upfront cost. A second mortgage can be a great way to use your home’s equity today to increase your home’s value in the long run.

It’s also a move supported by the Canadian Government. If you renovate a house or build a significant addition, you may be eligible for a GST/HST new housing rebate.

Please note Ontario’s zoning regulations on home renovation projects.

Unexpected Urgent Expenses

Sometimes emergencies happen. If a pipe bursts and the home needs expensive repairs ASAP, homeowners may not have the funds to cover the cost. Or, if a loved one gets sick or dies, you may find yourself with unexpected travel, hospice, or funeral expenses.

Unexpected expenses are a part of life. A second mortgage lets you tackle those expenses with equity you already have, rather than run up credit card debt.

Consolidate Credit Card Debt

Home Equity Line Of Credit HelocDebt consolidation makes paying off debt easier. It can also reduce interest. Credit card debt can snowball quickly due to high interest rates.

Second mortgages have low-interest rates. So, many Canadians choose to use second mortgages to consolidate and pay down credit card debt.

Pay Off Lines of Credit

A second mortgage is a popular way to pay off a line of credit. For example, a small business owner may take out a line of credit to purchase inventory. Then, they may want to pay it off before the business has time to make a profit.

Alternatively, a second mortgage can be used as a down payment on a new property purchase.

Education

For many Canadians, post-secondary education costs $60,000 on average. A second mortgage loan enables students to focus on their studies.

A second mortgage has a manageable interest rate. This is useful for someone who doesn’t yet have the career they want but does have an asset they can use to get there.

Second Mortgage Financing Options In Toronto

The first step to getting approved by a lender is to learn about your financing options. Then, you can consider what resources you’ll need to apply for a second mortgage successfully.

A second mortgage gives you access to equity without changing the terms of your primary mortgage.

There are financing resources in Toronto that Ontario homeowners can take advantage of. Once you understand the processes, you’re more likely to be approved than you might think.

Second Mortgage Application Process

Major banks and credit unions do not offer second mortgages. Instead, they offer home equity lines of credit, called HELOC.

The conventional method is to apply for a second mortgage with a second mortgage lender. Unlike a typical loan from a bank, a second mortgage is approved based on a home’s equity.

A second mortgage lender does not take income, credit, or debt servicing ratios into account when approving an application.

What is Your Home’s Equity?

Your home’s equity is how much of your home you own. The value of your home equity is the total amount of your primary mortgage that you’ve already paid off, plus the value of your initial down payment.

The value of a house can change over time as the market changes. So, to calculate the equity in your home, take your current mortgage balance (that is, how much you’ve already paid off). Then, divide it by the current estimated market value of the home.

You can use our second mortgage calculator to see the available equity you can borrow.

You will need to get an appraisal, in most cases, when getting a second mortgage. Toronto second mortgage lenders will only accept appraisal reports from their approved list of appraisal companies.

Second Mortgage Approvals

When putting together your second mortgage application, your goal is to get second mortgage approvals from one or more lenders. Second mortgages are approved solely based on home equity.

A home equity loan application is the way to get a second mortgage. Toronto residents can apply for a second mortgage even if they have bad credit (or no credit). A home equity loan is sometimes called a closed second mortgage.

With equity-based financing, you can get a second mortgage lone solely based on the value of your home. Your debt-to-income ratio DTI will not be a factor.

Application Materials

To apply for a second mortgage, make sure you have the necessary materials. At some stage of the approval process you will need:

  • proof of all mortgage balances registered on title
  • appraisal of the home’s current value. This will be ordered from the mortgage broker and must be company a lender will accept a report from
  • current credit score – this will be done by the second mortgage broker.

Your credit score is not a factor in whether or not your application is approved or rejected. However, it is a factor in determining your interest rate.

Toronto Second Mortgage Interest Rate Factors

Second mortgage lenders are taking on more risks than a bank typically does. Even though the loan approval itself is determined solely by your home equity, other factors contribute to the approved interest rate.

The most important factor to set the interest rate is the loan-to-value ratio.

Loan-to-Value (LTV) Ratio

To determine the interest rate, the second mortgage lender will consider a few factors. The most critical is the LTV ratio. This is the total cost of the loan divided by the total value of the house.

The lump sum of money the lender offers to the borrower is the total cost of the second mortgage loan. The total value of the house is the home’s current market value.

Credit Score and Co-Signer

After looking at the LTV, second mortgage lenders consider two other factors when they set the loan’s interest rate.

The first is your credit score. Toronto second mortgage lenders will run a credit check to determine your credit score.

The second factor, in some cases, is the credit score of a co-signer. If you have bad credit (or no credit), you can persuade someone with good credit to co-sign on a second mortgage. Note that this is not an option in all circumstances. Most second mortgage lenders in Toronto will require that the co-signer is also an owner of the property and is on the title of the home.

Some second mortgage brokers factor in the credit of any co-signer when setting the interest rate on a home equity loan. Talk to a second mortgage professional to determine if this is an option in your case.

Home Equity Loans in Toronto

There are a growing number of second mortgage providers who are based in Toronto, Ontario or have branches here.

Each home equity loan provider will have its own method of calculating the interest rate on a home equity loan. Applying with over forty providers takes time and will damage your credit score when you have multiple potential second mortgage brokers in Toronto do a credit check. Rushing through the application process can result in denials or a worse interest rate than you would have gotten otherwise. 

Before heading directly to a second mortgage provider, consider some of these next steps.  

Second Mortgage Brokers In Toronto

After you understand your options, you can get our 2nd mortgage broker in Toronto to help to navigate them. The next step is to contact us and speak with our second mortgage broker in Toronto.

There are two types of home finance professionals who can help:

  • private second mortgage lenders
  • second mortgage brokers

 

Second mortgage brokers in Toronto offer a range of financial services. Some are oriented towards helping you get approved, either from a home equity lender or a bank. They can help you put together a portfolio so you can present your case for a low interest rate to the home equity loan provider.

Toronto second mortgage brokers, in particular, can do an in-depth assessment of your financial needs. Then they can do a lot of the legwork for you.

Brokers can connect you with home equity loan providers and secure quotes. We’ll dive deeper into the services second mortgage brokers provide, and how they differ from lenders, later in this guide.

Avoid Surprise Fees

Second mortgage brokers can also help you avoid unexpected penalties. When you take out a second mortgage or refinance your primary mortgage can, your original mortgage provider may impose fees.

One Toronto family was shocked by the fee imposed when they attempted to switch to a new mortgage lender. The switch cost them $22,000, and it made local news headlines.

Brokers and home equity lenders can advise clients on how to avoid these fees. You can take out a second mortgage in Toronto without altering your primary mortgage. Or, a broker may recommend a different method of accessing your home equity.

Have Questions About A Second Mortgage?

Call us today to speak to a licenced mortgage broker.

Brokers vs. Lenders

Both second mortgage brokers and direct second mortgage lenders can help you get a mortgage on your home. But, brokers and lenders play different roles in the process. A lender approves the loan, while a broker brings the homeowner and lender together and leads communication. It’s also important to note when applying with a direct second mortgage lender in Toronto, they are looking out for their own best interest, while a second mortgage broker in Toronto will represent your best interest, as they don’t have any obligations to the lender.

Private second mortgage lenders are also labelled “non-bank lenders.” A second mortgage broker can help you get a home equity loan from a bank or a non-bank lender.

In 2019, Canadian non-bank lenders granted 24.5% of all residential mortgages in Canada. This includes second mortgage home equity loans. 

There are different benefits and drawbacks to working with a broker or a lender. A second mortgage broker can act as a liaison if you choose to work with both. 

Private Mortgage Lenders in Toronto

Private mortgage lenders offer home equity loans directly to applicants. These loans typically come with a higher interest rate than what institutional second mortgage lenders offer. But, private second mortgage lenders often accept applicants that banks reject. 

Private mortgage lenders cannot all offer a home equity loan with as high of a loan-to-value ratio as you may want. Instead, private second mortgage lenders are typically limited to offering home equity loans with a value of 85% of the home’s value.

This percentage must be the total value of all mortgages on a home. So, the actual LTV ratio of the second mortgage will often be lower than 85%, due to the LTV ratio of your primary mortgage. 

Second Mortgage Brokers in Toronto

Vetting private second mortgage lenders on your own is time-consuming. You also may qualify for a home equity loan from a bank without realizing it.

This is why second mortgage brokers are a useful asset. Second mortgage brokers help save you time and minimize the hassle of getting a home equity loan. They can also help homeowners get a fair interest rate.

Second Mortgage Brokers Land High-LTV Approvals

Second mortgage brokers in Toronto have gotten high-LTV home equity loans approved for their clients. While private lenders are often limited to a 75% loan-to-value ratio, second mortgage brokers have gotten higher LTV loans approved.

In fact, second mortgage brokers have recently gotten 90% LTV home equity loans approved for clients with good equity. How do brokers succeed? 

Second mortgage brokers help with five key tasks when you apply for home equity loans.

Financial Intake Interview

A financial intake interview is a conversation with your mortgage broker. In this interview, the broker will learn the current state of your finances. They will also want to know your reason for seeking out a home equity loan, and how this loan fits into your broader financial goals. 

During the financial intake interview, a second mortgage broker can also learn whether you fall into any categories that qualify for tax rebates. You may also be eligible for other incentives specific to Toronto, Ontario. 

Informed Advice

Your second mortgage broker can give you informed advice. They will know the particular focus of different Toronto lenders. This includes bank and non-bank lenders.

Some second mortgage lenders do not offer home equity loans on certain types of houses. For example, co-ops and multi-family units present more legal and logistical challenges to a lender. Your second mortgage broker will know which lenders are best suited to work with your type of home. 

Comparison Shopping

Second mortgage brokers will get quotes from multiple lenders. They can compare different home equity loan rates on your behalf.

Second mortgage brokers only require a single credit check to do this comparison shopping. This protects your credit score. 

Communicate and Negotiate

The most important task for a second mortgage broker is communication. They will communicate with lenders on your behalf. They will help you negotiate the best possible rate. They can present your financial status and your plan to repay the loan in a favorable light.

Second mortgage brokers will keep you in the loop during these conversations, so you are happy with the conclusion they come to. 

Close the Deal

Ultimately, second mortgage brokers will help you get a home equity loan at a fair rate. They understand the home equity loan lending landscape in Toronto, and they will use what they know to your benefit. 

Vetting Your Second Mortgage Broker

Before hiring a second mortgage broker, you can contact us with your questions. Consider asking about:

  • how they evaluate lenders
  • what factors they think will impact your financing options
  • what sets them apart from other brokers 

After you have considered different financing options and vetted second mortgage professionals, it’s time to seriously consider interest rates. 

Toronto Second Mortgage Interest Rates

The final step to getting approved by a second mortgage lender is to determine your interest rate. Then, you can compare the interest rates attached to different loan offers.

Currently, the typical Toronto second mortgage interest rate is 12%. This is the typical rate from a non-bank lender. However, rates can be as low as 4.99% from certain lenders.

Factors that impact your interest rate include:

  • your credit score
  • credit rating of any co-signers

These factors also contribute to the maximum potential LTV ratio of your home equity loan. Lenders also determine a second mortgage loans value by considering:

  • your home’s current value
  • how much you have left on your first mortgage

To aid with comparison shopping, many second mortgage brokers offer calculators that can give you a back-of-the-envelope estimate. You can also negotiate to prioritize fast loan repayment or low monthly payments. 

Calculate Your Second Mortgage Interest Rate

A calculator can estimate your likely second mortgage interest rate. It can also show how much you will probably pay on your second mortgage per month.

This second mortgage calculator can help you get started. Know that an online calculator will never be able to take in all the information that a trained professional can. A second mortgage broker can give you a better sense of what a home equity loan will look like for you.  

Is a Second Mortgage Right for You?

As a Toronto, Ontario homeowner, you may have some unique opportunities to access your home’s equity. A second mortgage can turn your asset into liquid funds, no matter what you need the money for.

You may qualify for tax rebates, high-value loans, and a lower interest rate than you think. But, with over 200 second mortgage lenders in Toronto–and top reputable banks and credit unions–finding the best second mortgage for you can be overwhelming. 

Why not talk to a professional? Our second mortgage brokers can help you consider your options.

For some, a second mortgage is a right choice. For others, our guides to mortgage refinancing or taking out a home equity line of credit could outline a better solution. 

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Getting a fast second mortgage in Toronto is an easy process. Homeowners are approved with equity for a second up to 90% LTV in Toronto.

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