There are times when the need to borrow money arises and a second mortgage makes sense.
While most second mortgages 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. We can also structure and fix a monthly payment that works best for you, and simply pre-pay the difference from the mortgage proceeds.
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 and the net advance indicated in the above example only accounts for the prepaid interest to illustrate the example. 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.
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.
- Existing 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 – while your ideal plan is to consolidate the second mortgage with a traditional primary mortgage when the time is right, you will want to address renewal/extension options and the reality of potentially needing to refinance your second mortgage with another if the existing second mortgage lender does not wish to renew.
Chat with us to see if a second mortgage makes sense.
-DV Capital Corporation #13186