Any decisions that Canadians make on second mortgages will be at least partially impacted by the mortgage rate forecast for 2023. Although predictions are a little premature, the previous rate increases by the Bank of Canada (BoC) will make their way through the economy and be seen more clearly in early 2023.
A slowdown in the economy isn’t ideal. However, slowing job gains and inflation could force the BoC to start dropping its key policy rate.
Chances for Appreciation
That’s one consideration. Then there are a few other thoughts included in a second mortgage on waterfront property. The chances for appreciation are strong. Plus, there’s good investment potential because these properties can be rented out easily for a high rate.
Finally, waterfront properties offer permanent views. If you buy in an area that’s being developed, you can’t be sure what the view will be in a decade down the road. Homes on a waterfront are at a premium because the views generally don’t change.
Understanding how second mortgages on these properties work can help you make a good decision.
What is A Second Mortgage?
As the name suggests, a second mortgage is placed on a property with an existing first mortgage. These types of financial products are considered riskier than first mortgages. The reason is simple if the property owner defaults on the payments, the person or institution holding the first mortgage gets paid first.
Because of this increased risk, interest rates for these second mortgages are usually higher than for first mortgages. You’ll need more than 25% of the equity in your waterfront properties to get approved. Some of these financial products appeal to a specific set of property owners.
Why You Might Need a Second Mortgage
There are a variety of reasons why you might need a second mortgage on a waterfront property. Applicants can consolidate debt or pay off renovations and improvements. More serious situations include taking on one of these mortgages to avoid a foreclosure or power of sale.
Remember, the rates for a second mortgage are higher than the first one. However, they are often lower than the ones you’d find with a line of credit or credit cards.
The loan-to-value ratio (LTV) is an important part of getting a good rate on a second mortgage. The formula here determines the maximum amount of the secured loan. It’s based on the property's market value, which is used as collateral.
To get the best rate on the second mortgage for waterfront property you should have an LTV of below 65%. You also need to have enough income to cover monthly interest payments.
There are other considerations. Remember you need to consider the different fees that include a home appraisal and title search as well as the private mortgage lender, administrative and legal costs.
After sorting through the different requirements and numbers, you’ll still need to decide what type of second mortgage works best for your situation.
Different Options for Second Mortgages on Waterfront Properties.
There are a few different options to look at for a second mortgage. Choosing the one that’s best suited to your situation means weighing the differences.
- The Home Equity Line of Credit (HELOC). This is a good product for people looking to borrow at a much lower interest rate than a more conventional line of credit. The HELOC is called a revolving line of credit. You pay interest on the money you borrow up to a certain ceiling on the credit limit. You can borrow continuously and repeatedly when you need cash. The waterfront property is used as collateral, and you’ll need more than 25% equity to start.
- A Cash Out Refinance. A few key differences exist between one of these products and a second mortgage. Refinancing a first mortgage this way means getting a brand-new product. The cash-out refinance effectively becomes the way of paying off the first loan. You can also borrow extra money in addition to the money required to pay the existing loan. There are fees and penalties that can add up to about three months worth of interest.
- A Private Mortgage. If you’re looking for second mortgages on waterfront properties but have bad credit, this might be a good solution. Private lenders finance second mortgages based on the equity you have built up. Private lenders don’t operate under the same strict requirements as banks and other traditional institutions.
More About Second Mortgages on Waterfront Properties with Private Lenders.
Of all the different choices for a second mortgage, private lenders have the most lenient criteria. These alternative lenders can supply mortgages for up to 75% of the value of any property. The home needs to be worth at least $150,000.
The ratio between the value of the mortgage application and that of the property is called the loan-to-value (LTV) ratio. It’s one of the main criteria used by private lenders. More traditional institutions like credit unions, trust companies and banks put more emphasis on credit scores, employment, and income ratios.
Private mortgages are high-risk investments, so lenders demand higher fees and rates. Borrowers can expect to pay rates between 7% to 12% as well as fees ranging from 4% to 6% of the total amount of the mortgage.
The rates depend on the LTV ratio. The fees, however, can vary based on how complicated the mortgages are, which can include legal issues. Approval can also depend on location.
Who Can You Contact for Financing?
Mortgage Broker Store can help connect clients looking for second mortgages on waterfront properties. We work closely with a comprehensive network of private mortgage lenders. Let us help you with the relevant decisions you need to make during the process. We supply free quotes and expert advice. Email ron@mortgagebrokerstore.com or call 416-499-2122
