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A second mortgage is a loan backed by a home on which you already have a mortgage

A second mortgage is a loan backed by a home on which you already have a mortgage

This entails repackaging your mortgage in order to pile a new loan on top of whatever you already owe on your home. The advantage of doing so is that the new, larger mortgage will come with pretty low interest, Hannah said. The problem, though, is that this has “long term implications, as you are now amortizing the amount you borrowed over a long period of time (20+ years) and there will payday loans online Washington direct lenders likely be legal costs to arrange this.” You may also incur penalties for breaking your original mortgage, Gowling noted.

Second mortgage

You’ll be paying a higher interest rate on this loan than you do on your mortgage because your lender doesn’t have first dibs on the property. If you default on your payments and lose your home, it’s the lender on your first mortgage that will be paid first.

Still, interest rates on a second mortgage are generally lower than those that come with unsecured loans, Gowling said. Another plus compared to lines of credit is that “monthly payments will include both principal and interest so there is an end date to the payments.”

And adding a new mortgage instead of refinancing the one you have might make sense “if the debt is amortized over a shorter timeline. You could end up paying less interest,” Hannah said.

Still, carrying two mortgage payments can be tricky, Gowling warned. Getting a second mortgage in order to consolidate other debt is a financial red flag, he added.

RRSP withdrawal

Where to place an RRSP withdrawal in this ranking seems a bit of a philosophical question. Gowling placed it fairly high up, noting that it’s another way to get cash without incurring potentially expensive debt. Hannah, on the other hand, placed it just at the bottom of his ranking, just above payday lenders. The drawbacks of pillaging your RRSP are many, he said. You’re taking away from your retirement funds and, unlike a TFSA, you won’t have the ability to repay the funds you withdraw at a later date. And that RRSP money may cost you a lot in taxes.

For example, say you withdraw $15,000 from your RRSP. What you’d actually receive is $12,000. The bank would remit $3,000, or 20 per cent, to the government as a so-called withholding tax.

Second, the full amount of your withdrawal – $15,000, not $12,000 – would count as taxable income on your tax return. This would be added to any other money you’ve made that year, potentially bumping you into a higher tax bracket.

Family and friends

This may surprise some, but both Gowling and Hannah ranked borrowing from family and friends as one of the most undesirable options for getting through a money squeeze. The advantage, of course, is that family loans often come with a flexible repayment schedule and little, if any, interest.

“I would caution against approaching family and friends for assistance as many relationships have been permanently damaged as a result of borrowing money,” Hannah said.

Generally, family loans can be a good option for a one-time emergency, and if you’re confident you can repay the money in a reasonable amount of time, Gowling said.

Alternative lenders

Alternative lenders serve borrowers with poor credit records, but the interest rates can be as high as 30 per cent. You can get both unsecured loans or use assets such as your car or home as collateral, which might lower your borrowing costs somewhat. You might be able to borrow up to several tens of thousands of dollars.

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