Let’s Talk About Second Mortgages

I’ll be blunt: Whenever I get a call from someone looking for a second mortgage, I throw the sink at them in an effort to steer them clear of this world of financing. Refinance? Family? Sell something? Anything to avoid a second mortgage. If, however, they persist and/or have a plan, and if it makes sense, then we continue the discussion further and get them a second source of financing. What is a second mortgage? Why are they so different than a first mortgage? Why would I ever want or need one? Those are some of the questions I will attempt to answer here.

First off (no pun intended), a second mortgage is exactly that: a loan secured against your home in second position, behind your first mortgage most likely from an institution such as a bank or mortgage lender. If you have a second mortgage and if you suddenly stop paying your mortgage off, the first person to be paid will be your bank or lender, then the second mortgage lender, then any creditors you have etc., unless there are liens on the property in which case the courts must decide who is in line for payment. A second mortgage is typically done through a private source (a person or group of persons) who are investing in the Canadian Housing Market via lending money to those people who can’t get it elsewhere (read: expensive) and who need it for a particular reason (read: desperate).

What makes a second mortgage different than a first mortgage is simply the rate and payment method. The rate on second mortgages ranges from 6.99 to 15%, but the payments are interest-only. Also, there are fees associated with getting a second mortgage such as: Lender fee to the group lending the money, broker fee…

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