A mortgage is a legal contract or loan that is given by banks or other kinds of lenders. It is used by the borrower to purchase or to maintain a property or real estate. The borrower is expected to pay back in regular monthly payments over a period of time.
A mortgage is given at interest and the debtor’s property serves as the collateral for securing the loan. The title conveyance becomes void when the debt is paid.
How it Works
Individuals, as well as businesses, use mortgages for buying real estate without needing to pay the entire amount upfront. The borrower in turn repays the mortgage plus the interest over a designated number of years. At the end of this stipulated payment period, they can then own the property outright.
Mortgages are liens or claims against a property. Therefore, the mortgage lender can foreclose on the said property if the debtor defaults on making payments. If this occurs, the lender can dislodge the occupants and sell off the property to fund the debt.
In Canada, it is possible to take out more than one mortgage. These are typically referred to as first, second and third mortgages. For this article, we would focus on third mortgages and how you can get one.
What is a 3rd Mortgage?
This is a loan in which the amount given is usually determined by the prevalent value of the property. This will usually be the 3rd in a series of mortgages after an individual has taken out a first and second one. To this end, it is prioritized less than the previous two.
What this means is that the first and second loans take precedence and will be paid first in that order. This does not signify that you pay it anytime you choose. It simply means that after paying these two, you will then be required to fulfill your payment for this third one.
In other words, you pay the three simultaneously but ensure that the previous ones are prioritized. You can read more on this here.
Benefits of Third Mortgages
There are several things you can benefit from taking a 3rd mortgage. These are:
- It provides supplementary funds for you to use as you consider fit. This means that you can make improvements to your lifestyle or property.
- It can be used to pay for college or university fees for your kids.
- You can use it towards purchasing another property.
- You may also use the funds for vacation if you wish.
These mortgages work as an alternate source of securing funding when traditional lenders like banks are not willing to lend.
How Do You Secure a 3rd Mortgage?
Before now, it was easier to qualify for third mortgages but these days, lenders are not so eager to give them. This is as a result of the fact that lenders want to protect themselves from the high risk of possible foreclosure. They want to be certain that they would get their money back in the event there is one.
If there is a reason for foreclosure and the property is sold, the first and second loans will be prioritized. The third loan may never be paid since it is the least secured. For this reason, they always have high interest rates. You can see how to qualify for one here https://www.sapling.com/6504740/3rd-mortgage.
To qualify for one, the lender will check your financial standing including your income and credit history. They will also assess your other two running mortgages, employment history as well as any debts you have.
The better your credit score and the more equity you own in your property, the higher your chances of qualifying. You may be able to get up to 85% of your home’s value. What this means is that the higher the value of your property, the higher the amount you will be able to secure. You will also need a stable income to qualify.
Additionally, if the lender holds your second or first mortgage, you have a higher chance of getting approved. However, for it to be practicable, the total amount on the two previous mortgages is put into consideration.
You must carry out an appraisal of your finances to be certain that you will qualify. You have to be sure that you can take on another mortgage while paying for the others. This is what is referred to as a debt service capability.
Using the Services of a Broker
It is therefore wise to consult with any qualified third mortgage broker around you before applying. They can ascertain your suitability and advise you on your options based on your finances. They will also be able to get you a lender.
It will be easier to qualify, and you can approach a lender with confidence when you have a strong financial standing. You can consolidate all your debts as you will get lower interest rates. You will also be able to increase your flow of cash.
Third mortgages provide you a way to have more funds at your disposal, but they can be difficult to secure. Before applying ensure to have a good financial standing and consult with a broker. They will be able to give you guidance on how to go about qualifying and applying.