Things You Should Know About Second Mortgage 

It is a kind of subordinate mortgage that is made while the original mortgage is still effective. As a matter of fact, the original mortgage would be receiving all earnings from the liquidation of property until it’s all paid off. Because the second mortgage would be receiving repayments only when the original mortgage has already been paid off, the rate of interest being charged to the second mortgage would be higher as well as the amount loaned would be lower compared to that of the original mortgage. 

Second Mortgage

When most individuals buy a property or house, they take out a house loan from a lending institution that uses the property as a collateral. This house loan is actually termed as a mortgage, or more technically, an original mortgage. The borrower is needed to repay the borrowed amount in monthly installments consist of a portion of the interest payments and principal amount.  

Over time, as the owner of the house makes an outstanding record on his monthly dues, the value of the house also increases economically. In addition to that, the difference between any remaining mortgage payments and the present market value of the house is termed as home equity. 

The owner of the house may decide to lend against his equity to fund other expenditures and projects. The amount he took out from his home equity is called the second mortgage, as the home owner already has been great on his first mortgage.  

Similar to the original mortgage, the second mortgage should be repaid over a certain duration at a variable or fixed interest rate which depends on the agreement signed with both parties. furthermore, the loan should be first paid off before the person who borrows can get a second mortgage against his equity.  

Since the purchase or first mortgage is used as the loan for purchasing the property, many individuals use second mortgages as their loans for large expenditures which may be very hard to finance. For instance, individuals might get the second mortgage to fund a college education of a child or to buy a new car. A second mortgage can also be an option to consolidate credit by using money from a second mortgage in order to pay off other debts that may be carrying even greater interest rates. 

Since the second mortgage uses similar possession for collateral as the original mortgage, the first mortgage has first concern on the collateral should the person who borrowed default on his payments. And if the loan gets into default, the original mortgage lender gets the first payments prior to the second mortgage lender. In other words, the second mortgage are much riskier for lenders who demand for a greater interest rate on the mortgages compared to the first mortgage. 

Like the original mortgage, there are actually costs associated with getting a second mortgage. The costs include original fees, appraisal fees, and costs to run credit checks. 

Even though most second mortgage Ontario lenders emphasize that they do not charge closing costs, still the borrower should pay the closing costs as these costs are included into the whole cost of taking out the second loan on a house.