Second Mortgages
Homeowners have a general aversion to second mortgages but the number of mortgages against a property is not really crucial. Homeowners should be concerned with the extent of their equity. A homeowner's equity of $25 000 is the same whether there is a first mortgage of $75 000 or two mortgages of $60 000 and $15 000 respectively on the property.A second mortgage allows you to reduce your debt faster. It may also be better if your first mortgage doesn't have a prepayment privilege. The term of the second mortgage should coincide with the maturity of the first, allowing you flexibility to refinance when they both mature. The second should also contain a "postponement clause" permitting the replacement or renewal of the first mortgage — without which it's possible for the second mortgage to become the first when you renegotiate the first mortgage. With a postponement clause, the second lender agrees to remain just that.
Unless the mortgage disallows it, Canadian law permits mortgages to be taken over by a purchaser of the property. Three different categories exist:
• Fully assumable: The mortgage can be assumed by a purchaser as of right.
• Fully non-assumable: The mortgage contains a clause making the mortgage due and payable on the sale of the property, and can't be assumed by the purchaser.
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December 4, 2008