At Amansad Financial, we have many clients in the Edmonton area who have come to us for help with finding a second mortgage. It’s not always easy to find a good deal on this kind of financing because the costs are higher than they are with a first mortgage. Then there’s also the issue of finding professional second mortgage lenders in Edmonton.
One of the first questions we’re asked is what the value of the property is in relation to what is owed so that we can determine the loan-to-value. If these conditions are both in place, and the credit meets the criteria, we generally recommend a home equity line of credit or a complete first mortgage refinance. This would be determined after assessing a few variables, including pre-payment charges, maturity date, etc. The interest rate for this sort of funding is significantly lower than it would be for an Edmonton second mortgage.
Private Second Mortgages in Edmonton
Some of our clients wonder why second mortgages are so much more costly in terms of interest rates. After all, going to a home trust for that sort of funding can carry rates as high as 18 percent, and sometimes greater. Our lending partners second mortgages generally start at 10% with an assumed 65% LTV, and increase as the LTV increases alongside overall perceived risk. Amansad Financial has connections with a number of private lenders who are also looking to invest in mortgages in the Edmonton area. Some are individuals and others are companies, but what they have in common is a desire to benefit from the higher interest rates available, combined with the relative appropriate risk. After all, most people will default on their mortgage only as a last resort, letting car payments and other obligations lapse first.
But the truth remains that second mortgages comprise higher risk than first mortgages, for the simple reason that they have to wait for the first mortgage holder and the costs associated with mortgage default are paid before collecting a dime. In many cases, foreclosure sales fail to bring in as much as traditional home sales do, and second mortgage holders in Edmonton can end up with a piece of paper but not much to show for it. You pay for that extra risk by having a higher interest rate on your note.
Second Mortgage / Home Equity Loans in Edmonton
A Home Equity Loan in Edmonton allow residents to take money back out of their home and use it for whatever they want. Maybe you need to put in a new air conditioning system, renovate a bathroom, or add a second story. You don’t have to use the money on home improvements, though. Maybe one of your kids is heading off to college, or you need to make payments for a major medical procedure. Either way, this money can go to whatever you choose.
If you own a home in Edmonton, you have been making payments against your loan for a long time. The key difference between rent and mortgage payments is that you never see the rent payments you make again. Mortgage payments, on the other hand, help you in two ways: they get rid of the interest on your loan, and the rest of the payment reduces your principal on the loan, increasing your equity, or ownership stake, in the home.
What is an Owner Equity Loan Mortgage?
This is simply a mortgage that relies heavily on owner equity within the property. More Owner Equity equals less risk, and in some cases translates to lower mortgage rates sometimes. There are various definitions for this, but the one I prefer is the one outlined below.
Home Owner Equity Loan Definition; an owner equity loan is a mortgage loan in which the borrower receives money. Typically the loan is secured by real estate already owned. https://en.wikipedia.org/wiki/Equity_loan
Now in such a case, the above mortgage would be in first position OR a 1st mortgage. Owner equity based mortgages are very common place. They can be 1st, 2nd, 3rd and even 4th mortgages. Your equity is essentially your credit.
Truth about Owner Equity in Edmonton
How many people do you know that paid cash (no financing) for their home/property in Edmonton? The truth of the matter is that all Private Mortgages are equity based loans.
Depending on the Loan-to-Value, in most cases will have a direct impact on:
1.) Whether the loan is approved.
2.) What the rate may be.
3.) The Term
4.) And more…
Here are some general questions a borrower should ask themselves when seeking a private mortgage? These questions may or may not be asked by the broker/lender; but better prepared than not
1.) Is my property desirable / marketable? – (Age, Condition, Location, Upgrades, etc.)
-Private Lenders must always look at the works case scenario should you not pay. Most Lenders are not in the business of holding properties.
2.) Can I afford the payment? If not, can I find a lender that will work with me?
-If a borrower cannot afford a payment, there are strategies/options to make the mortgage affordable during the term.
3.) What do I need the money for? – (Payback borrowed funds, renovations, etc?)
-In short, most lenders want to know where the money is going. A lender generally does not want to enable a habit.
4.) How long are the funds required? – (1 week, 1 month, 3 months, 1 year?)
5.) How quickly do I require the funds? – (Yesterday? Next Week, Next Month?)
6.) How do I plan on paying off the loan? – (Is it a solid plan, or flakey)
7.) Am I a credible borrower? – (Would you lend yourself money?)
8.) How much equity is in the property? – (What is the value of my property, and how much do I owe?)
For Example: If a property is worth $500,000, and a borrower owes $100,000 and is requesting a gross mortgage of $150,000; there will be less questions asked by the lender because they are in a very good equity position (50% LTV = .$250,000 total mortgages on property / $500,000 property value)
On the other hand: if a similar valued home has a borrower that owes $250,000 and is requesting $150,000, there will be more questions due to the higher equity position (80% LTV = $400,000 total mortgages on property / $500,000 property value).
Amansad Financial has connections to many providers for home equity loans in Edmonton. If you have been making payments for a number of years, you have likely built up some significant equity in the home.
Your Edmonton home equity loan lender will calculate the equity you have remaining in the home by subtracting your remaining principal from the original amount of the loan. If the purchase price of your home was $600,000, and your principal payments add up to $320,000 so far, you have $280,000 left on your loan. Subtracting $280,000 from $500,000 gives you an equity of $320,000. You can’t add the interest portions of your payments, though, because those just pay for the cost of borrowing money. This interest is what gives the banks profit for extending mortgages.
Just because you have $320,000 in equity, though, doesn’t mean that you can access all of that with a loan. Most lenders in Edmonton cap an equity loan at 75 to 80 percent LTV (loan to value ratio). So if your home’s value is $600,000, you wouldn’t be able to get more than $480,000 out (a figure which includes your existing principal). So if you have $280,000 left to pay, and you’re capped at about $480,000 for a home equity loan, you wouldn’t be able to borrow more than the difference ($200,000).
Home equity loans Edmonton Alberta
If you’re taking the cash out with your equity loan, you need to prepare for one of two changes to your mortgage: your payments will go up, or your amortization will extend longer. You now owe more money than you did before, so one of these two changes will take place. This is something to consider, especially if the refinancing is to help you pay off some debts and get your finances in order.
So just who should you visit for a home equity loan in Edmonton? Rates change on a weekly basis (sometimes on a daily basis, depending on the lender). Amansad Financial has relationships with all of the most reputable lenders in Alberta. Call one of our refinancing specialists today, and we will go over your situation and develop a strategy together.
Online Home Equity Loans in Edmonton
The longer you pay on your mortgage, the more home equity you build. If you never have to borrow against this equity, it becomes an important asset for you, either as part of your estate or potential liquidity after you retire. However, sometimes you need to access that equity, perhaps to send a child to college, finance that 25th anniversary cruise or make some major improvements to the house itself. When you start paying a mortgage, the vast majority of your early payments take off interest, so you build little equity against the principal outstanding unless you pay more than the minimum monthly amount. After you have been paying for several years, though, you may have enough equity to borrow against.
If you don’t yet have enough equity to make a loan feasible, consider a second mortgage against the property. This does increase your monthly obligations on the property, it gives you the liquidity you need, either to clear up some other debts, cover an unexpected surgery or help you afford your new vacation home. Either a second mortgage or an equity loan can be a helpful way to pay for major expenses that have come up in your life.
One of the most common unexpected expenses comes from mushrooming consumer debt. The ease of opening up a new credit card, buying appliances or furniture for no money down, buying or leasing a new car, or making other purchases on credit can backfire if you don’t have the money to pay those obligations when they come due. Interest expense, late fees and damage to your credit score all come with missed credit card payments, and as the debt builds, so does stress. Using one of these credit lines can be a valuable tool.
If you are going about getting a loan the traditional way, there is a lot of paperwork involved. Second mortgages are often much harder to obtain from traditional lenders, because they are not first in line if something happens and your property has to go into foreclosure. If your credit score has already started to dip, it can be almost impossible to find a second mortgage at a decent rate from a lender. Home equity loans are sometimes easier to obtain from a traditional lender, but again, the loan is not in first position. The documentation alone in this sort of situation is often a huge burden, as the lender comes back again and again for another piece of information, often tying up the process for weeks or even months. Meanwhile, the reason why you were asking for the extra financing is only going to become more stressful, as additional interest and fees stack up.
Home Equity Loan Requirements in Edmonton
Private lenders often represent an attractive alternative for homeowners looking for a second mortgage or an equity loan. A lot of these individuals or companies do not even require income verification or run a credit check if the LTV is low enough, because there is more than enough equity left in the property to make the loan an acceptable risk. All you usually need is a government identification, property tax statement, recent statement from your mortgage lender and a property appraisal. With a private lender, the property is the primary concern, rather than your credit history, because the lender is only determining whether the property’s value can cover the loan.
Private lenders often take much less time to approve a loan, because the documentation requirements are significantly lower. Also, you are usually dealing with an individual or small organization rather than the more byzantine structure of a bank. The price for this convenience comes with a higher interest rate and, quite often, a shorter term for the loan. If you are ready to pay the loan back in a shorter amount of time, then the higher interest rate is not that great a concern.
- Looking for the Best Home Equity Lenders?
- Do you have more questions about Owner Equity Based and Private Mortgages?
Amansad Financial has relationships with a number of private lenders throughout Western Canada with investment capital to provide. No matter whether you are looking for a second mortgage, a home equity loan or other source of liquidity from your home, Amansad Financial can take care of the entire process online. Get in touch with one of our customer service professionals today to get the process off the ground.
Amansad Financial specializes in finding funding solutions for our clients when other brokers could not come through. We perform a personalized analysis of each client’s needs before recommending a particular lender to take care of their needs. Give us a call today to get the process started. We have helped many people find funding for Edmonton second mortgages and other cities and towns throughout Canada. We can do the same for you!