Two Mortgages, Three Mortgages, Four Mortgages, Oh My!

Auxilium Mortgage does Second Mortgages
A second mortgage allows you to borrow more without having to break your existing first mortgage.

Yes that’s correct not only can you get a second mortgage but you can sometimes get a third and even a fourth mortgage.  Now you might be like most Canadians however who associate second mortgages with private mortgages and folks who have bad credit.

While this can be the case sometimes, it’s not always so. In fact there are a number of Canadians who have a second mortgage but just don’t realize it. If you’re one of those homeowners who have a mortgage and a home equity line of credit, more than likely you have a second mortgage .

What About Your First Mortgage?

When there is already an existing  first mortgage, and a homeowner wants a home equity line of credit (HELOC) the bank/financial institution/credit union will register this in second place. This is the priority it’s in, so when you would go and sell your property, each mortgage is paid out in this order as well.

Typically financial institutions consider first mortgages as the safest mortgages and those that offer the least amount of risk. But this is not always the case, especially when they exceed 80 percent of the value of a property. At this point they are required to be insured through one of the three mortgage insurers (CMHC, Genworth, Canada Guaranty).

These first mortgages can often go up to 95 percent of the value of the property, and while we prefer not to use the word “never” the likelihood of finding someone to place a 2nd mortgage behind one that is already at 95 percent is highly unlikely.

Second, Third, and Fourth Mortgages

A common myth about second mortgages is that they are always really expensive and costly rate wise. While this is sometimes the case it’s not always so.

In our example above where a HELOC was behind a first mortgage, most financial institution offer HELOC’s at rates between Prime + .50 percent to 1 percent, certainly not expensive.  Most financial institutions as well can place other types of mortgages behind 1st mortgages.  You will find that they are priced slightly higher than 1st mortgages but typically not by much.  These could be in the form of either fixed or variable rate mortgages, the loan to value they would be willing to go to is on a case-by-case basis.  However under the mortgage rules of 2014 you will not find any traditional mainstream lenders willing to go above 80 percent on a refinance as they are not allowed to. So any combination of a first and second and/or third and even fourth mortgage could not exceed this 80 percent of the value of the property.  The exception to this is private lenders who offer private mortgages.

Primarily the benefit of a second mortgage is that it allows you to borrow more without having to break your existing 1st mortgage.  Sometimes breaking an existing first mortgage is not advantageous as the rate may be superior and not one you could get today and / or  there may be costly fees associated with getting out of it.  Sometimes the terms or loan to value that you may have with your existing 1st mortgage may not be available in today’s mortgage landscape.

If you think a second mortgage may be right for you, and would like to learn more contact our team today, in fact, don’t give it a “second thought” – lucky for you we’re better at doing mortgages than telling jokes!
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