The Pros and Cons of
Second Mortgages in Ottawa
If you are considering consolidating your debt and paying
off your bills, one option is second mortgages in Ottawa. Some homeowners may
think that taking out a second mortgage on their home is a move of financial
desperation, but there are some situations where it might be better to look
into second mortgages in Ottawa rather than get a personal loan or refinance
your first mortgage.
What Is a Second Mortgage?
Put simply, second mortgages are loans against the equity in
your home. There are two types of second mortgages, both secured by your home.
The first type of second mortgage is a home equity line of credit where your
equity value is determined by the current appraised value of your home minus
the amount still owed on your first mortgage. A home equity line of credit is
much like a credit card with a revolving balance in which you can borrow as
much as you need at the time. You pay interest as you borrow funds. The second
type of second mortgage is a home equity loan based on the equity you have
built up in your home. This mortgage comes with a lump sum of money with fixed
interest rates and a repayment schedule set up like a traditional mortgage. As
with any type of financial product, there are pros and cons to taking out
What Are Some of the Benefits of
- Although interest rates on second mortgages tend
to be higher than interest rates on first mortgages, the rates are still
generally lower on second mortgages than on personal loans or credit cards
since the mortgage is secured by your property.
- Second mortgages give you access to a large pool
of money as long as you have equity in your home and a good credit score.
- The money you get from second mortgages can be
used for home improvements, children’s education costs, debt consolidation,
having disposable cash on hand or for any other reason you want.
What Are Some of the Disadvantages of
- Since second mortgages are secured by your home,
you risk losing your house if you are unable to make payments on the loan.
- Second mortgages add debt to your property. If
you have to sell your home and the market value of the property has dropped,
the proceeds from the sale may not cover your debt.
- There are fees associated with securing a second
mortgage. You will have to have your home appraised and pay for closing costs
again. For some homeowners, the cost of the fees may not be worth the actual
Although there are a number of pros and cons to second
mortgages for your home in Ottawa, a second mortgage should not be looked upon
as a negative financial product. Second mortgages are just another option to
consider when seeking financing. Since taking out second mortgages is a
complicated decision, it is best to speak with an experienced financial
advisor. A mortgage specialist
in your area can help you sort out your options and make a decision that will
be most beneficial to your situation.