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First off, let’s start by discussing what “equity” is. Equity
is like your home “working” for you while you sleep. It
is the difference between the value of your home, and the balance
left owing on your mortgage. Example; your home is
worth $250,000 and your mortgage owing is at $150,000. You
have $100,000 worth in equity in your home. Herein lies
the power in ownership. As time goes by, typically the
value in your home will go up. This is not a rule written
in stone, however over time it should work to your benefit. Ownership
x Time = Equity Gains. Whether or not you decide to do
anything with your equity is up to you.
Second Mortgages
Reasons for seeking a second mortgage are not so different from
any other reason to access equity in your home. The guidelines
to arranging, and the rates and terms for a second mortgage however,
are different from securing a first mortgage. Typically,
second mortgages are much easier to obtain because the types
of lenders that will provide funding for a second mortgage usually
are “rate and fee” driven. They are referred
to as “equity lenders”.
What does that mean? Some
second mortgage lenders will lend up to 100% of the value of
your home. For example; if your home is worth $200,000
and you have an existing first mortgage at $130,000 - at 100%
of the value ($200,000) – you can obtain a second mortgage
totaling $70,000. A typical second mortgage will have rates
anywhere from 10% - 20%, along with fees. That stated,
the fees involved are worked into the total amount of the loan. Fee’s
generally are not payable “out-of-pocket” to client,
but worked into the mortgage amount.
How much are the fee’s
that the lenders charge? That depends on the lender of
choice, but usually we as brokers will shop around to find the
best rate and fee for your best interest.
Documentation required to secure a second mortgage, is much
less intensive as securing a first mortgage. In many cases,
a mortgage application and an appraisal from an “approved
appraiser” is all that is required. In all cases,
an appraisal is required to be performed on the subject property.
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