Seconds Becoming More Popular
“Mortgage Rules Drive Demand For Second Mortgages”
The new mortgage rules on federally regulated banks (80% lending on refinance, $1,000,000 cap on residential, tighter self employed qualifications and fewer cash back options) has created an environment for more creative mortgage solutions.
And in some cases this can result in a second mortgage from a non federally regulated institutional lender or from a private lender.
The hole that people are attempting to fill is the financing over 80% on some type of refinance.
With the 2012 mortgage rules now in place since July, the maximum of 80% financing down from 85% may not seem like a lot, but it can can make the difference between making the numbers work and filling up your credit cards.
There still are some institutional lenders, particularly some credit unions, that are prepared to consider second mortgage financing up to 85%, providing that added bit of capital for those that qualify.
The same is true on the private mortgage lending side where some privates may even go higher than 85% depending on the real estate involved and the strength of the borrower. That being said, privates that go above 85% loan to value are in the minority of the private lending market place and higher loan to value amounts also tend to lend to higher interest rates.
But compared to being short on the cash required and having to push money into credit cards, most private money interest rate options could still be better than your readily available short term credit like credit cards provide. And even if you were to go with a credit cards to fill the cash amount required, you’re still using up the available credit you have to work with which can cause other problems including reducing your credit score.
Short term financing vehicles like credit cards also typically require 3% of the principal balance repaid every month were most private second mortgages are interest only.
Obviously the objective with any type of mortgage lending is to minimize the cost of capital as much as possible. So while some form of institutional second is always going to be preferred, a private mortgage option may end up being significantly less than any other alternative such as credit cards.
If you are looking at a private second option, make sure you are also looking ahead to how that second will be repaid in a year’s time.
Having a plan in place to repay this type of bridge loan us going to help insure that your finances will stay in order and that you won’t have to continue on with the private money option longer than you need to.
To find out more about second mortgage options available to you, give me a call at your earliest convenience and we can go through your situation in detail.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel