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Second Mortgage in Ontario

Second Mortgage in Ontario.

Second mortgage in Ontario is helpful when you need to easily borrow money.

While most second mortgages in Ontario are typically interest-only, there are amortization options available in the private mortgage market for up to 40 years (principal + interest).

In some instances, the mortgage may be prepaid for the term from the mortgage proceeds. On the other hand, we can also structure and fix a monthly payment that works best for you by simply pre-paying the difference.

Example:

Second Mortgage Example: Prepaid Mortgage Option:   
Monthly Payment ($416.25) x Months in Term (12) = $4,995.
Loan Amount ($50,000) 12 Months Prepaid Interest ($4995)
Net Advance = $45,005.
Scheduled Monthly Mortgage Payment = $0

Second Mortgage Example: Forced Monthly Payment Option:
Monthly Payment ($416.25)
Clients Monthly Payment Comfort: ($250.00)
Monthly Payment Difference: ($166.25) x Months in Term (12) = $1,995.
Loan Amount ($50,000) – 12 Months Prepaid Payment Difference ($1,995)
Net Advance = $48,005.
Forced Monthly Mortgage Payment = $250.00

You’ll want to keep in mind that other transactional costs are deducted from the loan advance. The net advance indicated in the above example only accounts for the prepaid interest to illustrate the concept. Also keep in mind that the prepayment feature is supported by the equity in the property, accordingly, the loan amount would need to increase after the first year in order to support the pre-payment. Otherwise, the ‘true monthly payment’ based on the loan amount, rate, term, amortization schedule, and payment frequency will apply. Thefore, it’s best to speak with your mortgage broker about timing in the event a tailored term length is required. 

Reasons for a second mortgage:
  • Consolidate high-interest debt into one payment at a reduced interest rate.
  • Alternative lenders underwrite loans more leniently.
  • Discharge from bankruptcy or consumer proposal to initiate the re-establishment process.
  • Deposit for the purchase of a pre-construction or resale property.
  • Outstanding personal and/or corporate income tax arrears.
  • Existing 1st mortgage arrears and also property tax arrears.
  • Investment purposes.
  • Renovation project for home-improvements (list & sell or to build a self-contained rental unit).
  • Construction financing.
  • Business operating capital.

Second mortgage terms are typically only between 6-24 months. Although your ideal plan is to consolidate the second mortgage with a traditional mortgage when the time is right, you will want to address renewal/extension options. In addition, the possibility of potentially needing to refinance your second mortgage with another lender if the existing second mortgage lender does not wish to renew.

Chat with us to see if a second mortgage makes sense for you.

-DV Capital Corporation #13186