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Second Mortgage Requirements in Ontario

16 July 2012

When homeowners have a good deal of value already built up in their home, tapping into that home equity can be a great way to get cash when you need it – and a second mortgage in Ontario can help you do it. But what are the requirements for a second mortgage?

What you’ll need to qualify for a home equity loan or HELOC will differ from lender to lender. If you visit a major lender to get your second mortgage, you might need to have good credit, good payment history on your first mortgage, and a significant amount of equity in your home. If you visit a second or third-tier lender in Canada, or a private lender, you will probably only need to have some equity built up in your home. So, what is equity? And how much do you need?

Figuring out your home equity can be a bit complicated. Most simply, you can calculate it by deducting the remaining balance on your existing mortgage from the total value of your home. The remaining amount will be how much equity you have. But you won’t be able to borrow against all of that equity. The new rules that went into effect in Canada on July 9 now dictate that the maximum amount of equity you can borrow against is 80 per cent.

Depending on the lender, your Total Debt Service ratio (TDS) may also be taken into consideration. This is the amount of debt you have, compared with the amount of income you bring in. This will tell the lender how capable you are of paying back the loan; and if you have too much debt, they might decide that you really shouldn’t be taking on any more.

Aside from where you need to be financially in your own life, there is some paperwork that you should have in order before you visit your lender or your mortgage broker. These include: your Social Insurance Number, a proof of employment letter, all of your first mortgage documents, and your bank statements. It’s definitely worth a phone call to your lender before you go in to make sure that you bring everything that you need with you so that you don’t arrive only to find out that you can’t apply for your second mortgage after all.

Taking out a second mortgage can be a great way to get your equity working for you and to get the cash you need. However, these mortgages can also be a bit more complicated than first mortgages. Knowing what you need and being prepared before you go can make the entire process go much more smoothly.

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