Homeownership is a dream of many Canadians as there are many benefits to owning a real estate asset like a home. There are also challenges associated with property ownership, and the most common challenge is maintaining your mortgage payments and keeping your credit in good standing. But if you already have a bad credit score, can a second mortgage in Toronto help fix it?
Well, life comes with many hurdles, and owning a house can help you get over some of them. One of the top advantages of owning a house is the ability to leverage your home equity. Also known as a home equity loan, a second mortgage is an effective way to leverage your home’s equity to get money to meet other financial obligations such as renovations, kids’ education, consolidating your debt, and fixing your damaged credit.
What’s a second mortgage in Toronto, and how does it work?
Basically, a second mortgage in Toronto is simply a loan you take out on your house. That means you already have a mortgage on your home, and a second mortgage is just that – another loan on your property. Depending on the amount of equity you have already built in your house, you can borrow against it and use those funds for other expenses.
A second mortgage in Toronto is just like your first mortgage, with your home being the collateral. As you continue building equity on your home, the total amount of money you can successfully borrow for your second mortgage also increases. Most financial lending institutions allow borrowers to borrow up to 80 percent of their home equity.
Most Canadians prefer a second mortgage instead of mortgage refinancing to avoid the penalties for breaking their first mortgage. Besides, qualifying for a second mortgage is easy, particularly if you have a significant amount of equity.
Keep in mind that refinancing your first mortgage can be challenging and costly if you have an unconventional income or a poor credit score. Conversely, the second mortgage in Toronto is approved based on your home’s equity amount. This loan can be used for different reasons, including;
- Consolidating a high-interest credit card debt
- Catching up on all missed mortgage payments
- Stopping foreclosure on your home
- Paying back CRA arrears
- Paying property tax arrears
Remember, you can use your second mortgage for nearly anything.
What’s the difference between a home equity line of credit and a home equity loan?
It’s important to mention that home equity loans and HELOC (Home Equity Line Of Credit) fall under the big umbrella of the second mortgage in Toronto. They may be similar as the two options let you borrow against your home equity, but there are important differences.
With HELOC, you can borrow money against your house’s equity by taking out a line of credit. You will be approved for a specific limit (just like a credit card limit) which you can borrow against. That means you can withdraw the amount you want but not more than the approved limit. Note that you will be charged interest on the amount of money you borrow rather than the full credit limit. And once you pay the amount borrowed, you can continue to withdraw funds.
On the other hand, a home equity loan offers you a lump sum amount of money upfront. The borrowed money will be charged interest, and you’re expected to make regular fixed payments until the total amount borrowed is paid. This is just like any other type of loan.
Can a second mortgage fix bad credit?
Sometimes, it’s challenging to settle huge bills, particularly when you don’t have enough resources to pay your debts off. But there’s a way to pay your bills on time and fix your credit score in the process. You can take out a second mortgage on your house and consolidate your debts. That means you will no longer make multiple payments. Instead, you will be making a single payment.
Just settle all your outstanding debts with the second mortgage loan. Then you will be paying one affordable monthly installment for your second mortgage. This will simplify your debt payments and minimize the stress surrounding your monthly bill payments. Keep in mind that making regular and timely debt payments can help improve your credit score.
Can you get approved for a second mortgage loan if you have bad credit?
Financial lending institutions often use the loan-to-value ratio to approve loan applications. That means if you have less equity on your home, you will be considered a high-risk borrower. Mainstream lenders like banks are less likely to approve high-risk loans. They prefer working with Canadian homeowners with good credit.
If you have bad credit, don’t worry. There are other options you can explore. The secret is to find a professional mortgage broker with specialized knowledge regarding secondary mortgages. He or she can help you explore other borrowing options.
Do you have a poor credit score? Do you plan to pay down your debts and get your credit rating back on track? Consult with a reputable mortgage brokerage firm to figure out whether a second mortgage in Toronto can help you achieve that.