Second Mortgages seem to be a subject that causes some people to squint and shake their head.  They have been getting a bad rap from many who think that anyone who takes out a second mortgage is in financial trouble.  This is simply not the case in many circumstances.  It boils down to the fact that anyone who owns a property with a first mortgage on it may want to keep that mortgage in place because of favourable terms or the cost to re-negotiate it.  It winds up being more cost effective to take out a second mortgage.  We’ve put together some questions that people ask when looking into a second mortgage.

1. What is a second mortgage?

  Answer:  Simply put a mortgage is a loan.  To have a secondary mortgage you must already have a first mortgage in place on a property.  You are borrowing a sum of money or portion above the value of the first mortgage presently existing on the property.

1. How do I know the amount of money a lender will lend me for a second mortgage?

 Answer:  You need to figure out how much your property is worth if you were to sell it.  Remember you will likely be bias in how much you think your property is worth.  For the purpose of find out the value a lender may want you to obtain an appraisal from a specified professional in the appraisal business.  If you’re lucky some institutions will accept a market evaluation from a real estate professional.  Market evaluations don’t usually cost anything where appraisals do.   Some lenders have a full time appraiser available at no cost or very reasonable cost.  Once you know the value of your property you simply subtract the amount owing on the first mortgage and this is your home equity or the amount of money you have tied up personally in your house.  There are other factors that play into the amount you can borrow.  The economy and financial crisis of the last few years have tightened up the market substantially.  Banks are riddled with mortgage defaults and may be reluctant to loosen up the money supply unless you have a stellar credit rating. 

1. How are interest rates calculated on second mortgages?

 Answer:  A number of factors play into the calculation including your credit score, the state of the economy, the lenders history and where they are at the moment with available money, and what you will be using the money for. 

1. Does the property I’m using as collateral need to have me living in it?

 Answer:  The short answer is no.  You will have to advise the lender which ever your status will be.  If you have no intention of living in the dwelling it will likely affect the mortgage interest rate.