Many people have trouble deriving the meaning of a second mortgage. It is simply a loan you take after the first mortgage. Before you apply for another mortgage, do some homework and serious calculations. Here are some of the things you need to do to get a second mortgage in Canada.
Know the risks of a second mortgage
Second mortgages will add up to your monthly bills. Most of them have high interests because of the high risks involved. Mortgage brokers will take your house as collateral before they disburse the loan, and this may put your house at risk. In case you fail to repay the loan, the lender has the legal right to list it for sale to recover the interests and principal amount.
Make a realistic budget
You must have an effective financial plan before you consider a second mortgage. You want to make sure that the payment on the home equity and credit is affordable. Look at your monthly needs. You want to make sure that only a third of the income covers loan repayments and other housing costs. The housing costs could include rent, property tax, utilities and homeowner’s insurance.
Know your credit score
You should know about your credit score before you apply for a Canadian mortgage. You can get a free copy of your report by asking for a credit file by email. Check with Equifax Canada or TransUnion Canada for a comprehensive report on your credit. If you cannot wait for an email, you will have to pay $15 to get an instant report. The lender will use the credit score to determine whether you are eligible for a second mortgage.
Know the amount of equity you have in your income
You must determine how much equity you have in order to qualify for a mortgage financing. The equity is the value of the house minus the total amount you have accumulated in debts. For instance, if the amount of interest and principal is $80,000 and the value of the house is $150,000, your equity will be $70,000. The lender will use this amount to estimate the amount of money you can qualify for.
Appraise the house
Having your house appraised is a key step when applying for a second mortgage. You need to call a specialist to determine the exact value of the house. He or she will consider the price you paid for the house, any changes to the neighborhood and the improvements you have made. Make sure you go for someone who has an experience in appraising houses within your area. Finally, get in touch with your bank and ask for the best rates. Make sure you compare rates from many banks and local lending institutions. You may be able to find more resources and insights at the Canadian Mortgage Services website.