• Buyer BewareSecond Mortgages: what you should know and why they will be more popular going forward.

    It is no big secret that the government and the banks are making mortgage rules much more strict which are already making normal financing harder to be approved for. It is our professional opinion at mortgage architects Robert Floris’ Hamilton Office that going forward, second mortgages will gain more traction as regular mortgages become harder to obtain. With that said, we would like to discuss the risks and sometimes benefits to this type of secondary financing.

    In our mortgage office, we do not like to have a second mortgage longer than one year in most cases. Unfortunately, these types of financing can go longer. We place our clients in these loans when we have a purpose and an exit strategy. Clients who have poor credit, job instability, health concerns or temporary cash problems are classic examples for getting second mortgages. Our goal for one year terms is: fix the credit, the job instability [or passing probation or contract work], their health and their income situation. If we can fix these problems for one year, then for the balance of their lives, they will have cheaper mortgage money. In one year we amalgamate their first mortgage and our clients are set for life. It is an awesome feeling when we help clients this way.

    Now for the negative risks for a second mortgage is:

    1. The interest rate: private or small companies can charge up to 14%.

    2. Fees: we have seen second mortgage fees by other brokers up to $10,000.

    3. Payments: are normally interest only [therefore principle amount is not reduced].

    4. Legal fees: are required. If the second mortgage is larger than $50,000, the client is responsible for the lender’s legal fee as well.

    5. Missed payments: if payments are missed on the second mortgage, the lender can start legal procedures even if the first mortgage is up to date.

    6. Penalties: can be steep if the loan is paid out earlier than maturity.

    Again, obtaining secondary financing can be beneficial if there is a purpose and an exit plan. Please read the fine print and consult a lawyer if considering such financing.

    Robert can be contacted at 905-574-9200 Ext. 215 OR by email at mortgages@robertfloris.com. You can fill out an application online at https://application.malink.ca:8112/App/MARC/FLORISR/en-ca/1896 with absolutely no pressure and no obligation.

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