Every year, thousands of Canadian homeowners use the value built up in their properties to borrow money using a simple financial tool: the second mortgage.
As the name suggests, a second mortgage is an additional loan taken out against the value of a property, and during a time when house prices across Canada are skyrocketing, second mortgages are the single most effective way for homeowners to unlock capital.
One of the key benefits of getting a second mortgage when compared to other types of loans is that a second mortgage is secured by an asset: your home. Even if you haven’t paid off your mortgage yet, years of making your monthly payments and general market dynamics mean that you likely have a significant amount of usable capital in your property that you can use for debt consolidation or to fund repairs.
While debt consolidation and renovations are the most common reasons people apply for 2nd mortgage loans the money can be used for a variety of other purposes as well, thanks to the attractive second mortgage rates currently available.
But how are second mortgage rates in Canada determined, and what factors play into what second mortgage rates are available to homeowners interested in borrowing? This article will explore how second mortgage rates are determined, and look at some of the factors that impact what second mortgage rates will be available to an individual borrower.
How Do Second Mortgage Rates in Canada Work?
Second mortgage rates in Canada are determined by a variety of factors, including the policies of the Bank of Canada, which sets base rates for lending in response to general economic conditions. In response to the coronavirus pandemic and the ensuing contraction, for example, interest rates were brought down to 0.25%, where they currently sit.
But second mortgage rates are also affected by personal factors, including:
- Credit History
- Loan Structure
Understanding these factors can help you know what to expect when it comes to applying for a second mortgage, and can help you find the best second mortgage rates for you.
Interest rates for second mortgages may be different depending on what province or city you live in. For example, second mortgage rates in Toronto will likely be lower than second mortgage rates in Prince Albert, Saskatchewan.
Why is this? Mortgages rates are, like real estate, a market, and they rise and fall depending on supply and demand and other local economic factors.
In a large city like Toronto, where many financial institutions and mortgage brokers are all vying for business in a hot real estate market, borrowers have a greater number of options when it comes to finding a mortgage. This drives down rates, as lenders need to compete with each other.
In Ontario, a mortgage broker like Burke Financial can help homeowners shop around for the best possible second mortgage rates rather than having to just accept whatever the big banks are willing to offer.
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2. Credit History
As with any loan, the rates available to you will depend at least in part on your credit history and credit score.
A credit score is a number between 300 and 900 that indicates how likely you are to repay your debt based on your management of debt in the past. People with credit scores below 650 may have a harder time securing loans than people with scores above 660.
This means that if you have struggled with debt and are looking for a second mortgage because you want to consolidate other loans, you should expect to pay a little bit more than you would if you had a higher credit score. However, these second mortgage rates will likely still be lower than those offered by payday loans and credit cards.
3. Loan Structure
A mortgage is a large loan, and as such it can be structured in several different ways. Most mortgages in Canada are five-year mortgages amortized over 25 years, which means that every five years the mortgage is refinanced based on changes in interest rates.
But second mortgages can be structured in several different ways, and this will have an effect on the overall second mortgage interest rates available (this is true of both second mortgages and home equities loans — you can learn more about second mortgage vs a home equity loan here).
For example, depending on how much you are borrowing and what your monthly income is, you may sign on for a 20-year loan or a one-year loan, which can in turn change the second mortgage rates available to you.
4. Income and Equity
Like any loan, lenders will take into account your earning potential when deciding whether or not to consider you for a loan.
If you are making a good annual salary and you have a significant amount of equity built up in your home, you will likely be able to get lower second mortgage rates than you will if you are unemployed and have low equity.
However, if you are currently facing a period of unemployment or irregular employment, a second mortgage is still your best option for borrowing money. If you want to get a sense for what kind of second mortgage rates are available to you, apply online today for a second mortgage loan through Burke Financial to find out what second mortgage interest rates are available.
The Bank of Canada predicts that interest rates will start to rise later this year and into 2022 as the market recovers, so if you’re looking for low second mortgage rates, now is the time to do so.
If you are considering a second mortgage rates in Toronto and want to make sure you get the best possible deal, you’re in luck. With the help of a mortgage broker like Burke Financial, you can get access to a range of offers, regardless of your credit score.
Applying for a second mortgage through Burke Financial is a straightforward process, and in the event of an emergency we can get you the money you need within two business days. Start your application today, or get in touch with Burke Financial to learn more!