Why do People Resort to Second Mortgage?
Loan (Photo credit: LendingMemo)
There are two types of mortgage loans depending on the order of issuing: the first and the second. Priority is provided by order of issuing. Loan on land site or real estate purchase are considered to be the first mortgage. Second mortgage occurs when additional borrowings are required and it is subordinated to the first. Usually it is issued at higher interest rates, as lender risks are increasing.
The second mortgage is a type of subordinated loan that is taken during the term of original mortgage. In a case of borrower default and the subsequent sale of property, all funds will be directed to original mortgage lender. As second mortgage payments will be made only after all obligations to primary mortgage lender are repaid, the interest rate on the secondary mortgage is usually higher. The amount of loan on, in contrast, tends to be lower. Vancouver residents as well as other citizens of Canada often use this type of loan for various purposes.
Since the primary mortgage is used as a loan only to purchase real estate, many borrowers use second mortgages as loans to finance large expenses that cannot be paid in any other way. For example, people can resort to this type of loan to finance their child’s college education or a new car purchase. Secondary mortgages may also be a method of other debts consolidation by using money from this loan to pay off other debts. For example, the borrower has three consumer loans to purchase a car, laptop and furniture, which make up $ 25,000, $ 2000 and $ 7500 accordingly. Interest rates on these loans make up 9 %, 21 % and 17 % per annum. Vancouver financial experts advise to consolidate (merge) these debts by means of getting a second mortgage of $ 34,500 at 8% per annum. Getting this type of loan, the borrower has an opportunity to prepay all consumer loans. However, he will benefit because, second mortgage rate is lower than consumer loans rates. Today a lot of banks and financial institutions of Vancouver provide secondary housing loans at reasonable rates.
Certain conditions and factors affect the development and organization of mortgage lending. Main political factors are: the overall stability of social system, predictability, or, conversely, the unpredictability of the political regime in the country, the presence or absence of an external threat, the possibility or impossibility of expropriation measures. Naturally, the instability and unpredictability of the political situation negatively affect the development of mortgage lending.
Provision of target lending and state guarantees to secure all type of loans contribute to successful development of this specific financial sphere. Targeted support of specific individuals or populations layers getting mortgage loans for housing or business development plays an important role in the development of landing processes. Legal factors are determined by general state of legal environment, capable to protect the rights of real estate property owners. The economic factors include the general state and development of financial market, currency rate stability, inflation and purchasing capacity of the population, which determine the overall scale and dynamics of real estate market. System of risks security, associated with the ownership, is of particular importance as well as insurance of liquidity and profitability of real estate. Vancouver Financial Association considers that specific forms of mortgage development influence country economy system.
Dan Sullivan for https://www.savealittlemoney.com/ with the assistance from jessijohnson.ca offering second mortgage in Vancouver.
Category: Mortgage
