The Pros and Cons of Second Mortgages in Ottawa

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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 second mortgages.
 

What Are Some of the Benefits of Second Mortgages?

  • 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 Second Mortgages?

  • 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 loan.
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.

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