If you need to take out a second mortgage in Calgary, you have more options than you might think. The most blue-chip clients go into the bank and take out a home equity line of credit, but it generally takes a credit score of at least 650 and the loan to value cannot exceed 80% if combined with an existing mortgage. Many people need to take out a second mortgage in Calgary, but their credit score in the ideal range or enough home equity to get a line of credit. They end up taking out a loan from a trust company or a private lender, but the rates are higher.
Why are interest rates higher for second mortgages?
The lender boosts rates because he is taking on more risk by extending this note. If you go into default and the home goes into a foreclosure sale, the first mortgage and legal fees have to be paid before any proceeds can go to the holder of second mortgages in Calgary. This means that the second lender’s risk of not being paid in case of a foreclosure sale is higher, and he passes that risk along to you in the form of a higher interest rate.
It’s important to be careful when looking at the terms of a second mortgage. Some home trust companies charge 18 percent or greater for this type of financing. Private lenders will work with people whose credit scores are even below 600. Interest rates for second mortgages in metro areas such as Calgary or Edmonton generally start at approximately 10% assuming a 65% LTV. However as the LTV increases, and the overall perceived risk after review is determined, the rates also increase.
How to get a Home Equity Loan in Calgary
You’ve likely been paying your mortgage off for several months now, or even for several years. Each time you make a mortgage payment, you make a dent in the size of the principal, which is the amount of the loan you originally took out to buy the house. When you first start making those payments, each monthly dent is quite small, as the bulk of your payment goes to interest. However, with each passing month, the amount of each payment that goes to principal goes up. If you have an open mortgage and decide to start making extra payments, the entire extra amount goes to bring your principal down even further.
The more of your principal you have paid off, the more equity you have in the home. Equity refers to the ownership stake that you have in your house. Even though your name is on the deed, the bank actually owns a part of it as well, until you pay off the entire mortgage. If you purchase a house through conventional financing, your initial equity is likely to be at least 20 percent, as that is the down payment you have to make to qualify for that sort of financing. If you take out a high ratio loan, your equity is going to be less, as the minimum down payment for that sort of loan is 5 percent.
Home Equity Loan Calgary Requirements
Once you have built up some equity, though, you may want to start taking out loans against it. People take out home equity loans in Calgary for any number of reasons. Perhaps you want to overhaul the kitchen. Maybe your 25th anniversary is coming up, and you want to take your wife for the trip of a lifetime to the Mediterranean, and cost is no object. Perhaps you’re starting that new business and need the money for seed capital. No matter what your reason, a home equity loan can give you the cash you need.
One word of caution here — when you take out a home equity loan in Calgary, you are adding to your principal. If your home is worth $1,000,000, and you have built up $750,000 in equity (meaning your mortgage principal is down to $250,000), you can generally get up to $500,000 or $550,000 in equity loans, because most lenders will advance you an equity loan up to 75 or 80 percent LTV (loan to value ratio). However, your mortgage payments will either increase as a result, or your loan term will become longer, because your debt is now greater.
If you’ve gone to your lender to discuss a home equity loan, you may or may not like the interest rate you were quoted. Amansad Financial has connections with every reputable lender in Calgary, and we can connect you with the very best deal for your situation. Interest rates on mortgage loans and home equity loans in Calgary change every week, and we know the best places for you to take your business, in terms of closing costs, discount points and customer service. Give one of our refinancing experts a call today to discuss the ins and outs of your own situation. We look forward to helping you!
So how can you ensure you get the right second mortgage or home equity loan in Calgary? Amansad Financial has relationships with a number of different private lenders that lend in the Calgary area. These are companies and individuals who are looking to make a profit in the real estate market by funding mortgages. During the term, though, many lenders only ask for the interest payments, instead of interest and principal. This gives you the chance to build your credit over the course of the loan so that, when it expires, you can qualify to refinance and satisfy your second mortgage. If you are interested in having Amansad Financial help find you a second loan with a private lender, give us a call today.