Second Mortgage Problems: When Your Existing Mortgage is in Arrears

Owning a home can be a massive challenge since it is most likely the biggest expense you will ever have. If you are struggling with your payments but have a lot of equity in your home, you could apply for a second mortgage. Now although this could be a temporary fix and help you with your first mortgage payments, it could also cause a lot of financial stress since you will also be required to make payments on your second mortgage.

If you are not in good financial standing, but follow through with the second mortgage process anyway, you could face the problem of not being able to afford your payments down the road. If you have missed three months of mortgage payments, your mortgages will be in arrears and action can be taken by your financial institution.

Arrear Process

Most banks understand that sometimes financial circumstances happen that are outside of the borrower’s control. This includes a family member passing away or a loved one getting diagnosed with a life-threatening disease. That is why financial banks do not take legal action if you have missed your first couple of mortgage payments. However, if you continue to default on your mortgages, then that leaves the bank no choice but to take action.

When your mortgage is three months behind in payments, the bank can take control by initiating a power of sale on your property. This is when you are no longer able to live in your home, and your house gets put up for sale on the market. If you live in a booming market, like what we are currently experiencing in Canada, banks are more likely to follow through with the foreclosure process so they can make a profit on your home.

If your home is sold for a value less than your mortgage balance, you are still responsible for paying off that balance, as well as paying for any additional legal fees for 20 years.

Arrear Prevention

Before you begin applying for a Brampton second mortgage, talk with your local broker to see if you are financially capable of taking on more debt. Be honest with your broker about your current expenses and any hardships you may be facing because stretching your finances to the highest possible limit can not only hurt your credit but it can also affect your future in your current home.

Second Mortgage Solution: When Your Existing Mortgage is in Arrears

Most Canadians face large amounts of mortgage debt. Some are able to manage these extra expenses and others tend to fall short. If you miss a payment on your mortgage, this is known as being in arrears, which can affect your credit score and your home could risk foreclosure.

Now, most banks do not take legal action if you have only missed one mortgage payment. This means you have time to find a solution and fix this problem before you fall even more behind with your payments and risk losing your home. So, what exactly can be done to prevent foreclosure? The answer is to obtain a second mortgage.

The Solution

A second mortgage can be taken out if there is enough equity in your home. Equity can build over time naturally because homes tend to appreciate in value. You could also increase your home equity by paying off your mortgage balance. Since equity is the difference between your home’s value and your loan balance, every time you make a mortgage payment your equity increases.

Now you may be wondering, what lender would be willing to sign off on a Brampton second mortgage if the homeowner is already struggling with payments? Well, the homeowner is able to refinance their existing mortgage through a second mortgage if they have good credit. This can prevent foreclosure from happening because the refinancing process could give the homeowner enough money to pay off their mortgage that is currently in arrears.

It is worth nothing that a second mortgage is an entirely new loan, which means you will now have to make monthly payments on two separate mortgages. Although this may seem like a lot of added expense, a second mortgage could be your best option because you could receive cheaper interest rates on your new mortgage. If your contractual rate on your first mortgage is extremely high, this could make it easier for you to default on your payments. Therefore, refinancing your first home loan through a second mortgage could help you achieve more affordable payments by receiving a lower interest rate.