Private Second Mortgages Have Low Monthly Payments

Private Second Mortgages Have Low Monthly Payments

Published: January 29, 2017 Last updated: January 6, 2021 at 7:12 am

Despite potential “sticker shock”, private second can have surprisingly low payments!

Recently I arranged a private for a family living in North York.

At the time, the interest rate was 9.49% and the loan amount was $40,000. Mrs. Jones called me to ask how come the monthly payment will only be $316.34.

This is an excellent question. I am always upfront with the costs and for a potential private client, as there is no denying there can be a bit of “sticker shock” at first.

Then when they hear how much the monthly payment will be, they are very pleasantly surprised, as they were expecting much higher.

Fact is, the vast majority of second mortgage borrowers are looking to keep their monthly payment as low as possible – usually they are escaping a scenario of too much cash outflow each month.

So in fact it is typically done to help the borrower.

But some people feel they can manage a higher payment and THEY WANT to knock some principal off each month.

Of course, that should be no problem for most private lenders. We only have to ask.

Requesting a Second Mortgage: What’s the Process?

First thing I ask my clients in such instances is to tell me how much per month they are comfortable paying towards this mortgage. I will then calculate what amortization period that works out to – and request it.

In the case of our $40,000 private mortgage at 9.49%, here are a few options:

  1. Interest only      – $316.34 per month
  2. 25 year am         – $349.20 per month
  3. 20 year am         – $372.59 per month
  4. 15 year am         – $417.45 per month

These same clients were also interested in the possibility of making lump sum payments now and then, just as they can with their first mortgage. They figured they will have some extra cash occasionally from tax refunds and employment bonuses.

This one is harder to accommodate, unless the mortgage is fully open, like a Line of is, for example.

Most private lenders will suggest you accumulate as much as you can over the term of the mortgage (typically only one year) and then reduce the mortgage amount at renewal time.

Keep in mind we never plan our clients to stay in a private for long.

As soon as it is financially viable, we will pay off this mortgage – usually by combining the private with their when it renews. This avoids prepayment penalties on the first mortgage.

As soon as it is financially viable, we will pay off the #secondmortgage, usually by combining the private second mortgage with their first mortgage when it renews. This avoids prepayment penalties on the first mortgage. Click To Tweet

Do you have more questions about Private Mortgages? Ask Ross how he can help.

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​Ross Taylor
One of Toronto/GTA's Most Trusted and Knowledgable Mortgage Agents

Ross Taylor is recognized by his peers as one of Canada's pre-eminent difficult mortgage specialists. His ASKROSS blog and column ​ in Canadian Mortgage Trends are focused on the intersection between mortgage financing and personal credit.

With unique dual certification as a licensed counselor and mortgage agent, Ross's insights are valued by mortgage professionals and homebuyers alike.

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