Homeownership bestows a number of privileges. Not only are you free to make any changes or repairs you want, the time and money you put into making your home more comfortable are concrete investments that will pay off when it comes time to sell.
But what you may not know is that your house can also provide you with considerable financial leverage in the meantime — even if you haven’t yet finished paying off the mortgage.
Your home is an asset, and in the process of paying off your mortgage, you come to own more and more of this asset outright. And given Ontario’s white-hot housing market, your home has likely appreciated in value significantly due to external forces. This means that you have built up a store of equity that can be used for a variety of different purposes, from paying down debt to funding renovations and repairs.
In this piece, we’ll discuss how a second mortgage can be used to unlock this equity and help you achieve your full financial potential.
What is a Second Mortgage?
As the name suggests, a second mortgage is a loan taken out in addition to your primary mortgage against the equity you’ve built up in your home. Unlike refinancing, which replaces your existing mortgage with a new one, a second mortgage is an additional debt (your initial mortgage will retain precedence in the event of a foreclosure).
Getting a second mortgage in Ontario is relatively easy, and can be done through a residential mortgage broker. Mortgage brokers work on your behalf to find a range of possible lenders who can offer good second mortgage rates and provide terms that work for you. In some cases, it is possible to get the money within a matter of a few business days.
How Should a Second Mortgage Be Used?
A second mortgage can be a great way to free up funds, but these funds are still a loan, and as such should be treated as investment capital rather than spending money. A second mortgage should be used to put yourself on a better financial footing, not pay for a holiday in Rome.
One of the most common uses for a second mortgage is to consolidate debt — especially high-interest unsecured debt from credit cards or auto loans. Replacing a number of smaller obligations with a single loan at a lower interest rate is a practical way for Canadians juggling a large number of payments to chart a realistic course toward debt freedom.
Second mortgages are also used in situations where the borrower has a large one-time expense they can’t cover with their savings: replacing a roof, for example, or car repairs. A second mortgage is a fast, low-interest way of quickly generating the necessary funds.
In addition to being a place to live, a home is a major asset, and you don’t need to sell it off in order to benefit from the financial leverage it provides.
If you need extra funds for debt consolidation or home repairs this year, get in touch with a mortgage broker who can connect you with some of the second mortgage lenders Ontario has to offer for an easy, financially-prudent solution.
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