Getting a second mortgage with bad credit is not as hard as you think. Like most people, many Canadians have anxiety about debts. If this sounds like you, there’s a good chance you may have bad credit.
In Canada, “bad credit” is defined as a credit score below 575. Bad credit makes it difficult to secure different necessities, such as a credit card and a mortgage.
What about bad credit and a second mortgage? Second mortgages are convenient because you can borrow more money on your house with lower interest rates. But is it possible to get a second mortgage if you have bad credit?
Here’s everything you need to know about getting a second mortgage in Canada with bad credit.
What Is a Second Mortgage with Bad Credit?
A second mortgage is when you use your home equity as collateral for your loan. Lenders are less intrigued by your credit score, employment, and monthly income. Second mortgages are a great way to pay off other debts and can even be used to complete renovations or repairs.
Why You Should Consider a Second Mortgage
Is a second mortgage even worth it? If you struggle to pay your home loan or have high-interest rates, it’s definitely worth it. Unlike other debt options, you have control over your second mortgage. You can choose your lender and agree on a second mortgage that works for you. There are also many options when getting a second mortgage. You can choose to go through an alternative lender rather than a bank, which may have strict lending requirements.
Ways a Second Mortgage Could Help You
A second mortgage is cheaper and will leave you with extra cash in your pocket. Are you still not sure if a second mortgage is worth it? Here are a few reasons why you may want to consider a second mortgage.
Prevent a Foreclosure
Are you facing foreclosure? A second mortgage could save you from foreclosure. With the right options and strategy preventing foreclosure is possible.
Pay Off Other Debts
What if you’re not facing foreclosure but can’t afford to pay off your other debts? A second mortgage is significantly cheaper than your other debts. Some of the money that went toward your high-interest home loan can go toward your other debts. You’ll be able to pay off your debts faster, increasing your credit score.
Pay Off Your Taxes
Are you in tax debt? Since you’ll be paying less on your mortgage, that money can go toward your tax debt. You can work with Revenue-Canada to lower the amount you are required to pay.
Catch up on Property Taxes
In addition, you can use that money to catch up on your property taxes. Depending on how much money you save, you can pay back all overdue property tax arrears.
Pay Off a Consumer Proposal or Bankruptcy
The money you get can also be used towards your consumer proposal or bankruptcy. This way, you can rehabilitate your credit and may even raise your credit score.
How Do I Get a Bad Credit Second Mortgage in Ontario?
There’s good news here — it’s possible to get approved for a second mortgage, no matter what your credit score is. However, you’ll have to create a plan in order to get approved.
A creditor will look at several aspects of your applications. Most will only consider how much home equity you have. However, some mortgage professionals may look at other details, which we will discuss later.
The source of funding you seek also depends on your approval. For example, you may want to look beyond your bank or any other traditional lender for second mortgage approval. This leads us to the next section.
Why You Should Consider an Alternative Lender
Your bank or previous lender may have strict rules for second mortgages. Better options are a call away. There are alternative lenders available, specifically ones that specialize in giving mortgages to those with bad credit.
Why should you choose an alternative lender? Simply put, they have fewer restrictions. Alternative lenders and mortgage brokers will look at details beyond your credit score, such as your home equity.
If your credit score isn’t as bad as you think, the lender may give you great interest rates.
Applying for a second mortgage is also simpler with an alternative lender. Not many documents are required and approvals are done fast. This takes the stress out of applying for a mortgage.
How Does a Lender Approve You for a Second Mortgage with Bad Credit?
We mentioned that a lender will look beyond your bad credit when approving you for a second mortgage. But what do they look for? A lender will look at how much equity you have in your home. Most lenders let you use up to 80% of your home equity toward collateral.
The more equity you have in your home, the more likely you’ll be approved. If you have enough equity, you won’t have to borrow against all of the equity in your home.
Looking for a way to find out how much equity you have in your home. You can use a home equity calculator to figure out your rates. Your lender also won’t approve your application until after they check how much home equity you have.
Other Second Mortgage with Bad Credit Requirements
Mortgage lenders may consider other things besides the equity in a home. Other second mortgage requirements may include:
- No late payments in the past 12 months
- Currently updated on mortgage payments
- Two years’ worth of consistent income
Be sure to discuss any additional requirements with your lender.
Get a Second Mortgage Today — Regardless of Your Credit Score
Do you want to get a second mortgage? If you have bad credit, you may wonder what your options are. As long as you have a reliable lender, you can get approved for a second mortgage — even with a bad credit score.
Are you looking for a second mortgage in Ontario? If so, learn more about our second mortgage process today.
If your looking for help contact us at 1-855-242-7732 or apply online today.