Usually, wealthy people used to think about a second property, not anymore! However, in recent years, more and more middle-class Torontonians are buying a second property, whether for retirement, renting, or vacation.
Also, it is not limited to middle-age or old people, but also young citizens, from 18 to 34 years old individuals also like to buy a cottage, cabin, or chalet. No matter what type of Toronto condo you are interested in, you need to know what is waiting for you. Here, Top 5 Tips for buying a second Toronto home are discussed.
5- Can you afford a second Toronto home?
Considering your financial condition is one of the main reasons for buying a second Toronto home. There are countless people who want to buy a second Toronto home, but the important question is whether you can afford it or not. If the answer is yes, you can have the best financial options at the best rates.
Interest rates in Canada are increasing, but they are still near the record lows. Therefore, it’s the perfect time for buying a second home.
4- How to Manage Refinancing?
Since you have a first property in Toronto, you have built up equity in that home. In fact, every time you pay a mortgage payment, you make equity.
The strong Toronto Real Estate Market has increased your Toronto home value as well, helping to build up additional equity as well. You can use that equity by refinancing your home, which means that you replace the first mortgage with a new one.
Most potential second home buyers prefer to take advantage of lower interest rates or find a mortgage with better terms. However, some of them refinance their first mortgage since they want to switch from a variable mortgage to a fixed-rate mortgage.
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Generally, you can use that equity for down payment on your second home or purchasing it outright. Also, if you need renovations, you can use it as well. However, it all depends on how much equity you have! Also, you can choose a fixed or variable mortgage and negotiate about the amortization period, just like any mortgage.
3- A Second Mortgage Tips
Taking out a second mortgage is one of the best ways to use the equity of the first home for purchasing the second home. The second mortgage is secured against the property you have a mortgage on. You can borrow up to 85% of your home appraised value. However, you need to subtract what is left to pay one the first mortgage.
For the second mortgage, you need to pay monthly, like the first one. It’s great, especially for those who can easily afford two monthly mortgage payments.
2- What is the Home Equity Line of Credit (HELOC)?
Second home buyers can use a HELOC to access funds for buying a second Toronto home. To do so, you need to have at least 20% of equity built up in your property and have a good credit.
For the second mortgage, you need to pay an amount of money beforehand, and you need to pay interest on the entire sum. HELOC is a revolving line of credit, accessing up to 65% of the first property value. In this way, you can pay the interest on any money you use.
1- How to Get Approval for The Second Mortgage?
For buying a second home, you should go through an approval process. If you already have a home doesn’t mean that great banks will automatically approve the new mortgage.
The approval process is mostly the same as the first one. Usually they look at your financial information, employment history, credit history, etc. Due to the strict lending rules, you need to pass a stress test, ensuring that you can afford the mortgage if the interest increases.
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Buying a second Toronto home is not a very difficult process, but you need to make sure about its affordability for you. Other processes are somehow the same as your first home purchase. However, the equity of your first home makes it easy for you to pay the mortgage payments. Nevertheless, you need to get approval for the second mortgage as well.
For gaining more information, it would be great to consult a Toronto realtor to do the best thing that makes your purchase easier.