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Demystifying the second mortgage scene in Vancouver

Whether you need $10,000 or $50,000 – Alpine Credits is the best alternative for home equity loans in Vancouver, BC

The Metro Vancouver area has been growing quickly over the years, as people see it as a desirable place to live. With demand to live in Vancouver growing, more property and housing has been developing as well, and as demand grows, so do property values. For existing homeowners, this provides a fantastic advantage. The greater your home’s appraised value and, the greater proportion of your mortgage you’ve paid off, the more of your equity you may be able to access as a loan. The loan in question is also referred to as a second mortgage or home equity loan.

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What is a mortgage? 

Before going over second mortgages, it’s important to understand what a mortgage is. Houses in Vancouver are amongst the most expensive in Canada, and traditional financial institutions don’t expect homebuyers to have all the money to purchase a house outright. As a solution, banks offer mortgages, which are loans specifically for buying property. 

Once you’ve decided that you want to buy a house and need a loan to complete the purchase, you’ll need to apply for a mortgage. With traditional lenders, you’ll need to pass their approval criteria, which includes having sufficient income, good financial history, and a good credit score.  

The banks aren’t the only financial institution to get second mortgages from. Alternative lenders provide second mortgages to borrowers who have challenges meeting the banks’ strict approval criteria. An example of lenders who do not emphasize your financial history is Alpine Credits. Rather, the calculated equity in your home determines your eligibility.   

Home Equity Loan Equation
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Different types of mortgages 

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Vancouver offers five main types of mortgages to potential homebuyers. Some of them can be combined with each other, and the right kind of mortgage will depend on your financial needs.

As the name suggests, the interest rate on these kinds of mortgages do not change. No external factor can change your interest rate. As a result, your monthly payments throughout the mortgage term are consistent.

The opposite of a fixed rate is a variable or adjustable rate. When you agree to this kind of rate, your payments will fluctuate along with the changes to interest rates. While the payments are inconsistent, you could potentially be paying off less overall compared fixed rate mortgages because the proportion of your payment that is interest can increase which means that proportion that is paying down the principal can decrease.

To experience both variable rate and fixed rate, you can choose a hybrid rate. Part of your mortgage will experience the fluctuations in the market, while another part will remain under a fixed rate term.

The openness of a mortgage has to do with their payment structure. Open mortgages are more flexible in allowing you to pay extra amounts towards the initial principal without any prepayment penalties.  Typically, open mortgages can be paid off in full without penalty.

In contrast to open mortgages, closed mortgages are not as flexible with respect to extra payments and could charge penalties if you do. However, they do have lower interest rates than open mortgages.

All types of mortgages can also apply to a second mortgage, but some lenders are more specific with their offers. Be sure to compare lenders and the opportunities the provide.

What is a second mortgage?

Once you understand that a mortgage is a loan that you can use to purchase property, you can assume what a second mortgage is. However, unlike first mortgages, second mortgages have more uses than just buying another house.  

Second mortgages can also sometimes be called home equity loans or home equity lines of credit (HELOCs). They are flexible financing options that use the appraised value of your property minus your outstanding mortgage balance to determine the potential size of your loan. Vancouver residents may use a second mortgage towards an investment property, they can also use it towards loan consolidation or home renovations.

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Pros of second mortgages

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Before choosing a second mortgage, be sure to compare the advantages and disadvantages. Some benefits of second mortgages include 

The money you take out from your equity can be used towards home renovations, loan consolidation, or another property.

If you use your second mortgage for loan consolidation, you’ll find the interest rates are comparatively lower than those of credit cards and personal loans.

The opportunities for second mortgages also include paying for tuition or covering emergency costs.

Second mortgage’s influence on your credit history can be positive if you regularly make payments on time.

As of summer 2023, Vancouver continues to have a reputation for having high value housing. The demand for housing grows along with the value of detached homes, townhouses, and even condominiums. Because of Vancouver’s bidding system, many pieces of property were sold more than the asking price. Not only are the listing prices high, but the interest rates have been climbing as well.  

Despite such high costs for property in Vancouver, the region continues to be a desirable living destination for both immigrants and people moving from elsewhere in Canada. As a result, second mortgages have a growing appeal. Current homeowners and landlords have seen this growing demand and see the opportunity to acquire more property, either for their children or for extra income. 

Second mortgage rates in Vancouver

The Bank of Canada sets the prime rate for the entire country, so interest rates in Vancouver are no exception. Second mortgage rates in Vancouver are also under the Bank’s influence combined with the lender’s pricing.

How to qualify for a second mortgage in Vancouver 

The qualification criteria for a second mortgage will be different for each lender. Some lenders will use your credit score, income, and other aspects of your financial history to determine your eligibility for a second mortgage. Typically, traditional financial institutions are the ones who factor in these requirements. 

Alternative lenders also offer second mortgages and, usually under different criteria. For one, Alpine Credits does not use your income or credit score to determine approval. The main thing they look for is sufficient equity in your property. You can calculate your equity by subtracting your outstanding mortgage balance from the appraised value of your home. With housing having high value in Vancouver, the equity value can be significant.

The application process 

Applying for a second mortgage operates similarly to applying for a regular mortgage or for a personal loan.  

Assess your finances

normally, lenders require a minimum amount of equity in your home before approving you for a second mortgage or home equity loan.

Check if your equity qualifies

normally, lenders require a minimum amount of equity in your home before approving you for a second mortgage or home equity loan.

Check other requirements

since different lenders will have unique requirements, check if your income, credit score, or financial history is accurate and meet the lenders’ standard.

Gather your documents

not only do you have to prepare your bank statements, but you’ll also have to provide identification and your home appraisal.

Compare and choose a lender

take your time with choosing a lender. A reputable lender will not only be transparent about all their requirements, but they’ll also work with you to find the best solution.

Apply for a second mortgage

most lenders provide an application form online, but they will likely also be available through the phone or in person. If you have prepared everything beforehand, the application process should be relatively quick.

Managing your second mortgage 

Getting another house sounds appealing, especially if you want to use it generate rental income. Regardless, balancing two major loans requires a lot of diligence. If you budget appropriately, you’ll be able to manage repaying both mortgages. Some common practices to good financial practice include 

The mortgages should take priority regarding payments, especially since they have your property act as collateral.

To reduce the number of tasks each month, you can simply have money ready in your bank account so that money automatically goes to the lender.

The moment you realize you may need assistance, ask your lender for help  immediately. Lenders are usually willing to work with you to find a solution so that you can stay on top of your payments.

Conclusion: Vancouver homeowner advantage with second mortgages 

If you’re a homeowner in Vancouver who wants to access the equity in your property, you can do so by applying for a second mortgage, also known as a home equity loan. Second mortgages allow you to use your equity towards loan consolidation, home renovations, or investment in another piece of property. 

With alternative lenders like Alpine Credits, you can gain access to your home equity in a smooth manner. Unlike traditional lenders, Alpine Credits focuses just on your home equity, not your financial history or your income.  

With the housing in Vancouver having high value, the opportunity for larger home equity loans is also higher. However, as with any loan or financial decision, be informed so that you can make the most of your equity. 

Frequently asked questions

The interest rates for both first and second mortgages in Vancouver depends on Canada’s economic climate, so there isn’t a definitive number. Based on the economic climate, the bank of Canada sets the base interest rate, and other factors may change the interest rate. If you have a good credit score and payment history, you may be offered lower interest rates.

You can get a second mortgage despite having a credit score below 660, but approval will depend on the lender and, your offers may come with higher interest rates if your application is successful. You may want to consider alternative solutions like home equity loans for a better chance of getting a second mortgage.

The speed of your approval depends on the lender of your choice and how quickly you complete the application. Normally, traditional financial institutions may take a few weeks to a few months to review your application. Alternative lenders are usually faster at the review process, and you could hear back from them within a few days.

Second mortgages and refinancing are concepts that relate to the equity that you have built in your property, but they are distinct concepts. While they both allow you to access your home equity, they offer different advantages. On one hand, second mortgages are literally another mortgage behind the existing first mortgage. Alongside your first mortgage, you’ll be making regular payments towards the second mortgage. The second mortgage can be accessed as a line of credit or as a lump sum.  

In contrast, refinancing allows you to replace your initial mortgage with a new loan that can be larger in size. Doing so allows you to switch lenders, which could lead to better interest rates. Ultimately, refinancing lets you change aspects of your previous mortgage like the term length, the type of interest, or payment frequency. While refinancing allows you to have a new rate, the new rate may not necessarily be lower. When you refinance, the rate will depend on the economic landscape and the Bank of Canada’s prevailing interest rate; it’s not likely that you’ll keep your previous mortgage rate. If rates do drop, refinancing is a great strategy to take advantage of them.