For most people, their first choice would likely be a bank or institutional second mortgage in order to secure lower rates.
But when you can’t qualify for further funding from a bank or institutional lender for some combination of cash flow or credit related reasons, then a private 2nd mortgage will likely become the next best available option.
The reason for the popularity of second mortgage registrations of any type is that in many cases a mortgage refinancing of an existing first mortgage is going to be more expense than adding a second mortgage charge to the property.
Especially if you have a first mortgage with a fixed interest rate, the cost associated with the corresponding prepayment penalty can be significant, and can make a straight mortgage refinancing uneconomical.
Sometimes the first mortgage holder will be prepared to rewrite the mortgage to increase the amount of funding without interest penalties, but once again, you’re going to need to be able to qualify for this type of offering.
In those situations where your credit and/or cash flow are a bit distress, but your first mortgage is in good standing, it typically is better to leave the first mortgage alone and apply for a private second mortgage instead.
Because a private second mortgage is typically for a smaller amount, you get to retain the good rate on the first mortgage, and the weighted average cost of the existing first mortgage and the private second is likely going to be significantly lower than a new first mortgage under these lending conditions.
Another popular use of a private 2nd mortgage is in the area of construction financing.
Many times the property owner or builder already has a first mortgage registered on the property where construction is taking place and would prefer to utilize a private second mortgage to fund the construction project than having to refinance the entire project.
The added benefit to the builder or property owner is that a construction mortgage through a private mortgage lender can typically be put into place quickly and provide a highly predictable draw administration process.
A private mortgage second can also be just a fast method to acquire a bridge loan where the funds secured can be used for a variety of purposes.
Even if the borrower has excellent credit and cash flow, he or she may have a deal or transaction that needs to close quickly that requires capital.
If the timeline for closing is a week or less, one of the fastest forms of financing available anywhere can be a private second mortgage.
We are fortunate to work with a number of private mortgage lenders that provide private seconds in Toronto, the GTA, and most of Southwestern Ontario.
If you’re in need of a private second mortgage, or would like to know more about how they work, I suggest that you give me a call so we can quickly go over your requirements and provide private 2nd mortgage options for your immediate consideration.