Are you struggling to find a solution to your financial crunch? Is a second mortgage a viable option to source an emergency fund? If you are a homeowner looking forward to capitalizing on your built-up equity but unsure whether to go in for a second mortgage option, then you have landed right.

This article explains how a Second Mortgage Ontario works and why the option is best for homeowners who contemplate using personal loans or credit cards for financial emergencies. Also, explore more here the benefits of opting for a second mortgage in Ontario and the various criteria to get qualified for a second mortgage.

But before exploring the Second mortgage, whet your equity basics a bit.

Brushing up a few facts about home equity and second mortgage

Home equity is the ownership of a property, calculated by deducting the liabilities attached from the total asset value. Whenever you repay your loan amount, a portion is paid towards the principal amount along with interest. As the principal is paid, your equity also increases.

In a nutshell, the more you own the home, the more your equity. A few other criteria like a strong market and renovations in your house also increase your asset’s value, thereby improving your net equity worth.

A second mortgage is acquired on the same property based on the equity owned through the primary mortgage. This mortgage is granted even when you have your primary mortgage yet to be paid. You are eligible for a larger loan if you have larger equity. The amount thus borrowed can be spent anywhere you like.

Although an additional monthly payment, the second mortgage is a boon for homeowners who struggle to meet urgent financial needs. Be that an additional home renovation expense or means to pay off debts and fees, the second mortgage is fast piquing up interest among Ontario homeowners.

Find out what is essential to make a second mortgage work.

How does a second mortgage work?

A second mortgage is calculated based on the equity you have built up, the value of your property and the balance amount you need to pay for your primary mortgage. The lenders also make sure that at least 20% of asset value remains in your equity worth.

Apart from building robust equity to be eligible for a second mortgage, you must have a minimum credit score of 620 and a DTI( Debt to income) ratio of 43%. Once you have successfully applied for a second mortgage, you will be required to pay back the loan every month. Failure of payment can authorize lenders to use your equity as collateral.

While there is no doubt that a second mortgage can be an additional burden when you already have a primary loan to pay for, the option can benefit the homeowners in many ways.

Benefits of the Second mortgage

Larger loan amount: Homeowners who have been paying the loan for several years would have built considerable equity. This makes them eligible for a larger loan amount.

Amount can be used anywhere: The borrowed amount can be spent anywhere you wish. Whether it is to pay off your debt or for home renovations, a second mortgage does not invite any restrictions.

Low interests: Low-interest rates are probably the best reason homeowners must go for a second mortgage. However, interest rates are higher than refinancing options.

A second mortgage can add to your monthly financial liabilities. Hence, ensure that you are aware of the pros and cons of the loans before applying for one.

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