A third mortgage is a type of loan made available to homeowners who wish to use the equity of their home as collateral and security for the debt. This Loan would be the third one on your property, and would be in addition to your first and second mortgage. These loans are provided from private mortgage lenders, in which there loan is secured through the equity of your property. The loan is given once in one lump sum and can be used to consolidate debt, invest in properties or finance expenses such as home renovations, medical bills or even college tuition. Third mortgages are extremely ideal to cover large expenses because other loans just aren’t big enough to cover these large expenses. The loan remains at an agreed fixed interest rate throughout its entirety, and is repaid over a set period of time. This is why it is referred to as a type of fixed rate loan.
What are the Benefits of a Third Mortgage?
Third Mortgage’s are ideal because they provide easy access for homeowners to get cash relatively fast and have the freedom and flexibility to use that cash for any purpose. A big advantage to a Third mortgage is that they are considered safer by lenders in comparison to other types of unsecured loans because they are secured by your home. What this means is if your mortgage defaults the lender has the ability to take control and sell your property to redeem their funds, your benefit as the borrower is that you will generally receive lower interest rates than that on credit cards or unsecured loans. Although the interest rates when compared to credit card companies and other consumer loans are much lower, interest rates are actually higher than that of the first mortgage and a second mortgage. A third mortgage with a fixed rate becomes a popular choice for people who wish to use the value of their home to receive a loan and consolidate there credit card debt. By clearing their remaining credit card balance with the third mortgage, the consumer is left with a lower interest rate and a single payment.
Do I qualify for a Third mortgage?
Third Mortgages are considered risky for lenders and therefore as lenders we will ask for the following criteria to approve a Third mortgage, the traditional stress test that has been introduced as of January 2018 does not apply to private mortgage lenders as they use a more common sense approach to lending.
Are you a Home Owner?
A third mortgage is a large loan starting at 20,000$ and upwards. If you are wondering if you can get a third mortgage the answer is quite simple. You’re only eligible if you’re already a homeowner. However, this does not necessarily mean you have to live on the property, third mortgages are available on non-owner-occupied properties. As with any mortgage failing to repay may result in you loosing your home.
What is your Income?
This one is a given, Lenders may request paystubs or a copy of your last bank statements in order to determine if an applicant can afford the payments. The more assurance the loaner has with the source of income, the higher the chance that the applicant can qualify for a third mortgage. Quick Equity Loans uses many lenders which do not ask for any income verification however, providing such information will help the lender determine the interest rates which generally are more preferable if the borrower provides proof of their ability to pay.
What is your Credit Like?
We use a variety of lenders, some of them do not check credit however, your credit history can help the lender determine the interest rate for the third mortgage. The lender will receive and review the applicants credit history from the credit-reporting agency. If your credit is good, this provides less risk to the lender and will result in a lower interest rate. However if your credit is bad you may experience a higher interest rate than you would have your credit of been good.
The lender will require a listing of the applicant’s equity. When purchasing a house, larger down payments will decrease the risk a lender takes on. When an existing home is refinanced, the more equity you have the more likely you are to qualify for a third mortgage.
The amount of equity in your property and your home will effect the total amount of money you are able to loan. The more equity you have in your property and your home, the more money you are able to loan. We use a variety of appraisal techniques ranging from “drive by” to Electronic and in some cases a formal appraisal report from a certified professional is required.
What kind of rates can I expect?
If you do qualify for a third mortgage you can almost always expect the interest rates to be higher than the first mortgage, and the second mortgage. The reason this is the case is because the first mortgage has 1st priority, and the second mortgage has 2nd priority on the assets of your collateral if the borrower happens to default on the loan. Also the borrower will face some home equity loan fees, as there are costs associated with a Third mortgage such as appraisal fees, and application and closing costs.
What are the Disadvantages of a Third mortgage?
Now although lenders consider third mortgage’s “safer” than some other loans there can be some disadvantages to borrowing more money against your house. This is largely due to the risk undertaken by the borrower, if they are unable to repay the loan at some point they risk loosing their house to foreclosure, which will result in their credit being ruined. When considering other unsecured loans the risk for foreclosure does not exist. Third mortgages also require fees and closing costs, just like any mortgage there are appraisal and closing costs for a third mortgage. So this is something to consider when deciding on a third mortgage, they can be a great way to access lower cost funding for certain large financial ventures. In some cases, certain home insurance policies will not allowe a third mortgage, requiring the borrower to switch carriers OR apply for a larger second to replace the existing one. Make sure to discuss this with your mortgage professional to see what options would suit your needs best
How much can I borrow on a Third mortgage?
The Amount Of money you can borrow is based on the amount of value you have in your property. To find out how much you property is worth you have to take the total value of your property minus the remaining balance of your mortgages (including both your first and second mortgage). For example, if your house is worth 800,000$ and you have a remaining mortgage balance of 300,000$ than the equity of your house is 500,000$. You can expect to receive a maximum of 85% LTV (Loan to value ratio)(GTA and surrounding areas only) what this means is you can receive up to 85% of the value of your home. Using the previous example’s figures and the Loan to value ratio of 85% would entitle you to a maximum loan amount of $680,000 minus the existing mortgage of $300,000 = available Quick Equity Loan amount of $380,000. There is a minimum loan requirement of $20,000, this is to make the loan worthwhile, as there is costs entailed such as appraisal and closing costs so you want to ensure if you are paying those fees you want to loan a large amount of money to make the cost worthwhile.