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Everything You Need To Know About Second Mortgages In Canada

As you make each mortgage payment, you are building equity in your home. Your home equity is also built by the increased value of your home over time. Your home value can increase in many ways including doing home improvements and upgrades, or a hot real estate market.

As you build equity in your home, you can access the money available in your property in a few different ways, including:

What Is A Second Mortgage?

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A second mortgage is simply another type of loan you secure with your property. It is registered in the second position since there is a first mortgage currently registered on the title of your home. This means it has a second priority to the primary mortgage when being paid out when you sell your home or refinance your mortgage.

Second Mortgages Explained

When you are considering taking out equity from your home, refinancing your first mortgage may come with some challenges, such as:

In these situations, where you may not qualify to refinance your mortgage, the only available option to access your home equity will likely be a 2nd mortgage.

How Much Can You Borrow?

Use Our Quick Quote Tool To See How Much Equity You Can Access As A Second Mortgage, With Monthly Rates & Monthly Payments!

How Does A Second Mortgage Work?

Second mortgages work the same as any mortgage, except without the income and credit requirements you need to qualify for a mortgage at a bank.

Just like any mortgage, second mortgages have a term, an interest rate, monthly payment, a pre-payment penalty, and closing costs.

In most cases, second mortgages don’t have an amortization. What does this mean? It means the monthly payments are interest-only. You can request to have the mortgage amortized, and pay down some of the principal balance.

The term of the loan can vary as well, ranging between 3 months to 12 months (1year). Most second mortgage lenders offer a 12-month term. A 2nd mortgage is not a long term solution, and shouldn’t be relied on for multiple years.

The penalty for breaking a second mortgage during the term is usually three months of interest payments. Most send mortgages don’t allow for lump-sum payments to be made.

Second Mortgage Rates

The interest rate for a second mortgage varies based on a few key factors.

  • The amount of equity remaining in the home
  • the amount of money being taken out
  • The borrower(s) credit score(s)

Since a 2nd mortgage approval is based on equity, and not the borrower(s) income or credit, there is an increased risk to the 2nd mortgage lender. A second mortgage lender is leveraging their lending risk based on the real estate market condition.

While credit and income are not factors for getting approved for a 2nd mortgage, just like any mortgage, your credit will be a factor in determining the interest rate.  Having good credit is an indication of lower risk, while a bad credit history can a signal for higher risk for a second mortgage lender to lend to a specific borrower.

The interest rate for a 2nd mortgage can range between 4.99% to 10.99%. The lower the risk the second mortgage lender, the lower the interest rate will be. The higher risk is, the higher the rate will be.

A great way to find out your potential interest rate for a second mortgage is using a second mortgage calculator.

Second Mortgage Payment

Payments for a second mortgage are usually based on interest only, and most second mortgage lenders will only offer a monthly payment schedule.

To calculate second mortgage payments use our second mortgage calculator to have an understanding of your interest rate and monthly payment.

Have Questions About Second Mortgages?

Call us today to speak to a licenced mortgage broker.

Step-By-Step Guide On Getting A Second Mortgage

Of all types of mortgage loans, this is the easiest type of loan to qualify for. The approval is mainly based on the equity available in the home. Homeowners who have a bad credit score or a high amount of debt can get approved since the approval is based on the equity in their home.

The Second Mortgage Process Is As Follows:

  1. First, an appraisal must be ordered from an accredited appraisal company, confirm the fair market value of the property.
  2. Next, a lender will need to confirm the balance of the existing mortgage registered on the home.
  3. Next, given there is sufficient equity (20% or more), the homeowner would choose the desired loan amount based on the equity available, up to 85% or 95% of the home’s value.
  4. Once all of the above is confirmed, a mortgage application will be sent to mortgage lenders for review.
    Upon the lender’s review and approval, a mortgage commitment for will be issued
  5. Once the approval is issued, the homeowner(s) would review the approval and terms and accept the lender’s offer.
  6. Once the approval documents are signed, the lender will issue the final registration documents to the borrower’s lawyer.
  7. When the homeowner’s lawyer receives mortgage documents, they will make an appointment to meet with the homeowner(s) to sign the final documents, and collect any outstanding documents required by the lender.
  8. Once conditions the lender sets for the lawyer to satisfy, have been met, the lender will disburse the loan amount to the borrower’s lawyer.
  9. Finally, the lawyer will write a cheque or direct deposit the remaining balance of the loan to the homeowner’s account.

Advantages & Disadvantages of Getting A Second Mortgage

Before taking out a 2nd mortgage loan, it’s important to understand the pros and cons of second mortgages. This type of loan comes with many pros and cons, and is suitable for most situations.

All homeowners have different and unique situations. What may be a disadvantage to some, may be an advantage to others.

See the list of advantages and disadvantages of getting a 2nd mortgage.

Advantages

Disadvantages

Common Uses Of A Second Mortgage

All homeowners have unique circumstances where they need to tap into their equity to access money.

Lenders don’t put any restrictions on how you can use your money. That said, it’s important to use your second mortgage loan wisely.

Below is a list of some common uses of a 2nd mortgage:

  • Emergency funds
  • Paying for education
  • Medical expenses
  • Investment property
  • Business investment
  • Bridge loan
  • Pay off high-interest credit cards and loans
  • Pay mortgage arrears to stop power of sale process
  • Pay CRA income tax arrears
  • Pay property tax arrears

Need To Take Out A Second Mortgage On Your Home?

Everyones situation is different and it’s important to do your research on 2nd mortgages before proceeding with the loan. While there is a lot to learn as a homeowner, it’s a good idea to get the knowledge and experience of a licenced mortgage broker.

Our expert mortgage brokers are here to help guide you to financial success. Contact us today to discuss your 2nd mortgage needs and get unbiased mortgage advice.

Low Interest Rates

SECOND MORTGAGE RATES

Best second mortgage interest rates from second mortgage lenders.

Fast Approval &Amp; Closing

FAST CLOSING

Get a fast second mortgage approval and closing in 48 hours.

Bad Credit Approved

BAD CREDIT? OK

All credit types and credit scores accepted.

No Income Verification

ANY INCOME TYPE

No income verification required for accessing your equity.

Approved On Equity

APPROVED ON EQUITY

All approvals are based on the equity and your property alone.

SECOND MORTGAGE
See How Much Equity You Can Access

Second Mortgage Process In Canada

Getting a second mortgage is quite simple. Second mortgage approvals are based on equity, not credit or income.

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Why Choose Us For Your Second Mortgage?

Why Mortgage Commitment?

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We take pride in taking the time and effort to match up every individual homeowner and homebuyer with the best mortgage financing options and rates. With access to more than 200 participating mortgage lenders, there are mortgage solutions for all types of borrowers. We listen and understand your mortgage and real estate goals, and find the best mortgage terms tailored to your specific goals to save you thousands of dollars on your new mortgage.

Many Second Mortgage Options To Choose From

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