Second mortgage is worth a second look

In the past, second mortgages were associated with high rates and restrictive terms. Only those really in debt need a second mortgage – right? Not necessarily. Chuck your old ideas; a second mortgage is worth a second look. Second mortgages are getting increased attention these days – as historically low rates and rising house prices combine to make borrowing against your home one of the favourite financial strategies of the year.

There are a couple of strong reasons to consider a second mortgage. Many homeowners, for example, are taking advantage of the increased value of their homes to “buy up” and get the house of their dreams. Now, consider that many homeowners across the country received excellent rates on their mortgages over the last few years. Without a second mortgage, the prospect of changing houses could mean the loss of a great-rate first mortgage for these homeowners. But instead, the homeowner can carry their great rate with them when they move – and “top up” their borrowing needs with one of the attractively priced second mortgages available right now.

For homeowners who are buying up, then, a second mortgage can be an excellent financial strategy.

But homeowners who are staying put can also benefit from a second mortgage. For any Canadian with debts outside their current mortgage, a second mortgage can be a top-notch debt reduction strategy. A majority of Canadians carry some consumer debt – a car loan, say… or a loan taken out for renovations or university/college education. For some, the situation is even more dire. A growing number of Canadians are staggering under consumer debt: with persistent credit card balances that seem impossible to eliminate. Dig out your loan agreement or your last credit card statement and take a look at the interest rate you’re being charged for borrowing. If it’s higher than the rate available for a second mortgage – and you have some equity in your home – then you have an option to consider for your debt management. We should point out that this is not the same as having a solution to overspending… but consolidating your debt in a low-interest mortgage can sure speed the path to financial recovery!

Finally, it’s worth taking a look at the first-time homebuyer who may need more than the 75% of the home’s value they can get from a conventional first mortgage. The typical route they take is a high ratio mortgage in which the mortgage insurance premiums are amortized over the life of the mortgage, even if they are able to quickly pay off the amount over 75%, or the value of their home increases over that 75% loan to value ratio. They may be better off choosing a conventional mortgage, while securing an attractive second mortgage that enables them to pay off the additional funds as quickly as they like.

Second mortgages have long been associated with unexpected debt – and they remain a great strategy for managing extra expenses. Entrepreneurs and the self-employed, for example, can accumulate tax liabilities that exceed estimates. And many parents decide to tap into their home equity to help contribute to education expenses for their children.

An independent mortgage professional can help you access a broad range of lenders and find the mortgage rates and features that meet your needs. Whether you’re moving up the house ladder, moving out a student or just sweeping out the debt -- a second mortgage is just one more financial tool at your disposal.

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