If you owe a lot of debt and own a home, one way to achieve a much cleaner financial slate is by taking out a second mortgage Ontario. Second mortgages typically take the form of home equity loans, and they are popularly used to consolidate debt or to make major purchases for things like sending the kids to college or having a major renovation performed on the house. As long as you are eligible for another mortgage and can get a competitive interest rate, it may be the best and most affordable way to restructure your finances and break the vicious debt cycle.
One Payment with a Lower Interest Rate
Like many people, you may owe a lot of money to credit card companies. That debt may come along with a fairly high interest rate, so chipping away at it isn’t easy. In addition to that, keeping up with all of those payments is a big ordeal. With a home equity loan, you can take out a single loan and use it to pay off all of those credit cards and other loans. What’s even better is that you should be able to get a very competitive interest rate.
Qualifying for a Second Mortgage
Before you get too excited about taking out a home equity loan, make sure that you’re eligible to get one. Simply owning a home isn’t enough. Lenders take many things into consideration when deciding whether or not to give people second mortgages. A few of the top examples include:
Equity – You need to have a decent amount of equity in your first mortgage in order to qualify for a second one. This can be a problem these days because many people are underwater on their mortgages, which means that they owe more than their homes are worth and have negative equity.
Excellent Credit – You won’t be able to get another mortgage unless your credit is in good shape. Ideally, it should be excellent. If there are a few blemishes right now, you should work on cleaning them up before applying for another loan. Sign up for credit monitoring services and do what you can to achieve a better credit score. In addition to helping you qualify for another mortgage, this will make it easier to get a competitive interest rate.
A Good Debt-to-Income Ratio – Lenders will also want to see that you aren’t completely overwhelmed by debt. If you owe far more than you earn, you may be out of luck. There are sometimes exceptions for people who will use their new mortgages to consolidation debt, so make sure to check.
If you do qualify, don’t apply for another mortgage until you’ve shopped around a little. Some lenders offer better interest rates than others. Another thing to consider is how much you will have to pay at closing. Without weighing the available options, you won’t be able to get the lowest closing costs. By getting a low interest rate and low closing costs, you will start off with the best terms possible.