What is a Third Mortgage?

The third mortgage loans come after the first and second mortgage loans. These loans were very common during the early seventies and eighties. However, several savings and loan scandals globally have changed the overall complexion of home mortgage loans.
This article explains the status of third mortgage loans, benefits of these loans and the concept of second mortgage loans.

What is the Status of Third Mortgage Loans in Canada?

In Canada, it is quite uncommon to find lenders who offer this type of mortgage loans. For the purpose of acquiring a third loan after two existing mortgages, lien position is needed since legal entities identify lenders to be paid first based on lien position covering the title. Just like fixed rate mortgages, it is difficult to locate a lender who is ready to provide you a secured credit line in the third position. However, if you have any form of equity in your home and agree to leave your existing first and second mortgages out of refinance, it may be possible to secure mortgage for the third loan.

What are the Benefits of Third Mortgage Loans?

Third Mortgage Loans have several benefits such as offering various alternatives like debt consolidation loans, credit lines and refinancing. You can also enhance or maintain the value of your home. Mortgage rates are generally lower when secured by home equity loans. Tax laws in Canada let you deduct the interest of second mortgage in certain cases. Before you look at financing for your home repairs or remodelling projects, come up with a practical budget that includes estimated cost overruns. Try to obtain project quotes from at least two contractors.
For projects that cost less than $2000, you can consider the home equity credit line. There are no application fees and reasonable floating rates for the first two years. Home equity line of credit also ensures flexibility in using your principal amount. You only need to pay the interest amount on what you borrow. For comparatively larger projects, a closed third mortgage would provide you with a better rate over the long term. The longer period to repay your loan makes you more likely to recoup the closing fees cost with a lower fixed rate.

What are Second Mortgage Loans?

You will surely want to know about second mortgage loans in Canada. A house or real estate can have a number of mortgages placed on it by lenders. The first mortgage holder has first claim to any proceeds on the sale of the property. The second mortgage holder then can be paid off once the first mortgage holder is paid off. If there is a third mortgage, then that lender must wait until the first and second mortgages are paid off before they can get paid. This also means that the first mortgage holder has a higher level of security than the second mortgage holder. The third mortgage holder has the least amount of security. The lower level of security results in a higher level of risk on second mortgage rates. The higher level of risk also means that fewer lenders will be willing to place a second mortgage on your property.
Fewer lenders and a higher level of risk usually results in a higher rate of interest on a second mortgage. A mortgage broker should arrange for an appraisal of your property since this will help determine the loan to value ratio of your home. A higher loan to value ratio will result in a higher rate of interest. Once the loan to ratio value passes the 90% mark, the chances of getting a second mortgage are very low. A second mortgage can be used to consolidate debt from credit cards, educational bills or personal loans. In many cases the interest rate charged will be less than what a credit card company would charge. The second mortgage interest rate will be lower because credit card debt is not secured and.

Study your Options

It is best to review all your options carefully even before you avail of any of these mortgage loans. Determine the advantages, downsides, interest rates, payment terms and default risks. It is not wise to sacrifice your real property should the terms be unreasonable.


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