4 Things Canadians Still Don’t Understand About Second Mortgages

• July 17, 2018

If you live in Canada and own a home, then you may have a slight idea of what a second mortgage is all about. For those who don’t know, it is a type of loan secured against your current home. It is a loan that is based upon the equity that you have built on your current home. Though second mortgages are very common in Canada, there are certain aspects of it or some of their applications that some Canadians still don’t understand. Here is a look at some of them-:

Your home is a Security

When you go for a second mortgage, it is your home you will be using as security. If you fail to honor the terms of the mortgage, the bank may decide to foreclose as is the case with a first mortgage.

Second mortgage can be used to avoid Private Mortgage Insurance

With conventional mortgages, if you don’t have a 20% down payment, there will be the need for you to obtain private mortgage insurance. This is what the Canadian Mortgage and Housing Corporation charge in terms of the CMHC fees and sometimes it can be very high. A second mortgage is a nice way to avoid the PMI and is a cheaper alternative if you can’t meet the 20% requirement.

Second mortgage can be used to Consolidate Debt

If you are neck deep in credit card debt, you can use a second mortgage to consolidate all the payments into one affordable monthly payment which can be easily managed.  Instead of having to make several payments with high fees and varying due dates every month, all the payments are rolled into one.

Second mortgage can be used to Improve Credit Rating

If you have bad credit, a second mortgage may be useful in helping you salvage the situation by consolidating debts and making payments on overdue bills.  With this comes the peace of mind you need, and will also aid in the organizing of finances back to order.