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For homeowners looking to consolidate debt, fund renovation projects, or pay for maintenance and repairs, a second mortgage is one of the smartest ways to borrow large sums at low interest rates.
But while you’re guaranteed to pay a lower rate on a second mortgage as compared to an unsecured loan, it is still important to look around to find the best rates on a second mortgage you can find — if you’re borrowing tens of thousands of dollars, shaving even half a percentage point of your interest rate will translate into significant savings.
So, how can homeowners in Canada find the best second mortgage rates, and are there ways to improve the drive down interest through more strategic borrowing? This article will outline three important tips that can help you get the most competitive rates on the market.
1. Settle for a Lower LTV
LTV, or loan-to-value ratio, is a key term to understand when taking out a second mortgage. Essentially, when you get a second mortgage you are borrowing against the home equity you have built up, and the amount of equity you have will determine how much you can borrow.
For example, if your home is currently work $600,000, and you have $400,000 outstanding on your mortgage, your equity is $200,000. LTV is the percentage of that equity you are allowed to borrow. If your mortgage broker offers 85% LTV, you could borrow $175,000.
When you borrow the maximum amount, you will likely need to pay a higher interest rate, so if it is feasible to settle for a lower LTV, this can help you reduce your interest rate.
2. Apply for a Second Mortgage from a Mortgage Broker
How you choose to go about getting a second mortgage is perhaps the most important factor in determining what options will be available to you. While many homeowners approach their bank directly about a second mortgage, the bank will prioritize its own lending products — whether or not they are the right ones for you.
Applying through a mortgage broker specializing in residential properties will expand the range of options available, which could translate into lower interest rates. Mortgage brokers don’t sell their own products; instead, they connect you with a variety of lenders and act on your behalf to find the best possible deal on interest rates.
3. Negotiate Higher Monthly Payments
If your long-term goal is to pay as little in interest on your second mortgage as possible, then it can be helpful to look beyond the interest rate itself: you may be able to save significant amounts of money by opting for higher monthly payments that will help you pay back the debt quickly.
Taking the time to go through your finances to determine how much you can afford to pay, and then working with your mortgage broker to negotiate a payment plan that fits your budget while retiring the debt on a more aggressive timeline can help you get the second mortgage you need without spending a huge amount on interest.
Second mortgages are one of the most affordable borrowing options available to homeowners, but getting the best possible deal can involve some maneuvering. If you aren’t sure how to find the second mortgage that’s right for you, get in touch with a local mortgage broker who can answer your questions and find you the best possible rate.
