A second mortgage is a loan which one gets on keeping one’s house as collateral. In the requirement of money for other projects, usually, people place their house as collateral to get a loan. Since a house is an asset which could increase in the future so that is why it is kept as collateral. It is called a ‘second mortgage’ because of the fact that it is taken from a bank after you take the purchase loan from the bank to buy a home.
This is also known as “home equity line of credit” as in this loan home is kept as “equity.” The loan balance decreases as you make the monthly installments with the passage of time. And the value of equity increases or decreases with the increase or decrease of the value of a house in the market. A second mortgage is available in different forms, namely, lump sum, a line of credit, and rate choices. There is a huge demand for second mortgage in Toronto as people are making use of this type of mortgage to start new projects.
Out of all the advantages of second mortgage loans, one is that it gives an opportunity to get a certain loan amount as you have kept your home as collateral. The lender is at less risk in this case which is why it is easier for him to give a loan to people. Also, the interest rate is lower in this loan as there is already collateral is there with the lenders to recover the loan in case of borrowers’ failure to pay the loan. Not only this, there are certain tax benefits which people could get on the second mortgage but one should get aware of all the technicalities before going for this type of loan.
Just like the benefits, there are certain disadvantages associated with this loan. A second mortgage could be foreclosed by lenders in case you fail to pay the installments in time. This could lead to a serious problem for a borrower and his family. Although interest is less, still there are many different types of costs associated with this loan which you need to pay during the period of paying the installments. Also, a closing fee is given at the end of the loan period to close the loan successfully. So, a wise decision should be taken before jumping on to this mortgage.