AI Products 

Is It Safe to Take a Second Mortgage?

Rick Smith
Is It Safe to Take a Second Mortgage?

A second mortgage in Alberta is a loan made in addition to the homeowners’ private mortgage. It is considered a subordinate mortgage made when an original mortgage is still in effect. Well, the second mortgage would receive the repayments only when the first one has been paid off. However, the interest rate of the second mortgage is higher and the amount would be lower than that of the first one.

When Should You opt for A Second Mortgage?

While purchasing a property most people take a home loan – the lenders use the property as collateral. Well, technically, a home loan is also a form of mortgage – most specifically the first mortgage. The borrowers repay the loan in monthly installments – made of principal amount and interest payment.

The difference between the current market value and the remaining payment is called equity. A homeowner can borrow a second loan against their home equity – it is called the second mortgage since they already have an outstanding first mortgage. Like the first one, it must be repaid over specified terms based on the loan agreement.

What Are the Things Required for A Second Mortgage in Alberta?

To qualify for a second mortgage, you need to meet certain financial requirements. To start with your credit score should be higher than 620. Your debt-to-income ratio should be less than 43% with a decent amount of equity in your first home. Since you are using equity of the property for the second mortgage you need to have enough to grant the second loan.

Borrowing Limit

It is possible to borrow a hefty amount of money with a second mortgage. You need to use the significant equity as the collateral hence the lender would allow you to borrow at least 80% of the home value.

Approval Time

The timeline of a home equity loan may vary in different institutions. You should apply for an appraisal of the home and the lender takes a few weeks to review your application. Well, the approval time can go up to four weeks and sometimes longer based on the circumstances.

Cost of the second mortgage

There are certain costs associated with a second mortgage. The cost includes appraisal fees, credit check channels, and processing fees. Most lender states that they do not charge any closing charge – the borrowers still pay closing costs in some way.

Wrapping Up

Taking a second mortgage means getting access to a lot of cash using your property as collateral. This loan comes with a low interest rate and certain tax benefits. You can use a second mortgage in Alberta to improve your financial condition or consolidate debt. Though there is no risk of taking a second mortgage it can be substantial. You might have the risk of losing your collateral if you fail to make the payment.

Rick Smith
Zupyak is the world’s largest content marketing community, with over 400 000 members and 3 million articles. Explore and get your content discovered.
Read more