What to know about getting a second mortgage

What do you need to know about getting a second mortgage? ... photo by CC user nikcname on Flickr

Looking to get into investment real estate? With the dark days of the Great Recession in the distant past, bargain basement prices are no longer available, leading many to think that they missed the boat on a great investment opportunity, even though prices are still climbing at a healthy rate in many major real estate markets in Canada and the USA.

However, with many businesses like Mortgagecwf.com second mortgages in Toronto are easier to come by that you might think.

Just the same, there are a few things you should know before adding more debt to your bottom line. Here’s what you need to keep in mind before getting a second mortgage…

Interest rates are often higher than what you are charged on your 1st mortgage

Despite the fact that a second mortgage puts up the equity in your home as collateral, it is often subordinate in nature.

As a result, the lenders would be second in line behind the issuers of your primary mortgage to get paid off if you were to declare bankruptcy tomorrow.

To manage this risk, they often charge an interest rate that is much higher than what is currently assessed on your primary mortgage.

Can you shoulder the burden of a monthly bill that will be much higher than what you might be expecting?

Second mortgages can serve as an alternative to home equity loans

If you have the income to handle a home equity loan, but lack the credit history to procure this type of loan from the banks, then acquiring a second mortgage against the value of your current house is a way of getting around this inconvenient obstacle.

Entrepreneurs that lack a traditional job and victims of identity theft often find themselves in this predicament, so if you are in this camp, or have bad credit for some other reason, then this is a viable path to go down if you need cash to increase your real estate holdings in this hot economy.

If you default on your second mortgage, it can lead to foreclosure 

Before inquiring on the availability of bad credit mortgages in Mississauga though, keep in mind that even if the subordinate lender does not possess the deed of your house, they can still purchase the right to hold it.

They are able to do this if they can convince the current holder of your first mortgage to sell them the outstanding mortgage debt that you still owe on your primary residence.

They can then initiate foreclosure proceedings on your home so they can turn around and sell it to recoup the losses from the failed loan that they made to you in the first place.

To avoid this painful scenario, make certain that your current financial situation will permit you to afford the higher payments that you will be burdened with via the elevated interest rate that are commonplace with second mortgage offerings.