On a $500,000 mortgage loan with 5% down, you will be paying 4% CMHC fees. That’s a total of $19,000!
Taking out a second mortgage along with the first mortgage is one way borrowers can avoid PMI. A second mortgage can add a monthly payment to your budget, but can be a cheaper option than PMI.
One of the most attractive benefits of buying a home is the potential to use the equity you have built up over time. Why let it sit there? Let that money you’ve earned start working for you!
You can use the funds however you’d like, but many people choose to use a second mortgage for home improvements, other investments, a child’s college education, an emergency fund, and more.
One popular usage of a second mortgage is to make an investment, like buying a rental property. Instead of saving up 20% for a down payment, you can tap into the equity of your existing home. The bonus of using a second mortgage for investment purposes is that the entire interest on that loan now becomes a tax deduction .
7. How much can I borrow?
That depends on how much equity you have built up in your property. Generally speaking, you will only be able to take out a portion of the of equity you’ve built up. Lenders have restrictions on the loan-to-value (LTV) ratio and take second mortgages into consideration.
For instance, most second mortgages allow you to access up to 80% of the equity you have accumulated in your property (85% in major cities). If you own a property valued at $500,000, and your first mortgage is for $325,000, you’d possibly be able to get access up to $75,000 upon obtaining a second mortgage if you’ve been approved to borrow 80% of the market value of your home. If however, you owed $400,000 on your first mortgage, you wouldn’t be able to access any new funds with a second mortgage approved to 80% LTV, as you’re already at 80% LTV ($400,000 find / $500,000)
On the other hand, a closed second mortgage ount of your equity. Specific questions like this should be addressed with a mortgage broker who specializes in second mortgages.
8. There are some fees
Second mortgages are a great option to keep in mind, but they do come at a price. You’ll need to pay some fees, so be sure to speak with a professional about getting a second mortgage.
9. You and your team MUST compare interest rates
Much like you would with a first mortgage, you should always consider the rates for second mortgages offered by different lenders. This is why working with a professional broker who has access to multiple lenders is your best option.
10. You can consolidate debt
Buried in credit card debt? If you have hefty balances on your credit cards or an enormous pile of student loans to pay back, a second mortgage offers you a way to turn all those high monthly payments into one affordable payment and which can be easier to manage vs. multiple payments with disparate due dates.
You can get a much lower rate on a second mortgage than your credit cards, so this can save you money in the long run and simplify your monthly debt payments, but even when the rate is the same or higher, you can save on cash flow by reducing your monthly payments Most credit cards require up to 3% of the outstanding balance. So if you are only making your minimums, or even worse, missing them! But you have at least 20%+ equity in your home (or more in a rural location) then this is a key sign you should be looking at utilizing that equity.