If you have a good rate on your current mortgage but need to borrow against your equity, replacing that mortgage may not make sense. A private second mortgage lets you keep your first mortgage as it is and add a second loan behind it.
How a second mortgage works
A second mortgage is registered against your property behind your existing first mortgage. You keep making your first mortgage payments as usual, and make separate payments on the second. If the property were ever sold, the first mortgage is paid out first, then the second.
When a second mortgage makes sense
- Your first mortgage has a low rate you don’t want to lose
- Breaking your first mortgage would trigger a large prepayment penalty
- You need a smaller amount for a short time
- Your first-mortgage lender won’t increase your loan because of credit or income
When replacing the first mortgage is better
If you need a large amount, if your first mortgage is up for renewal soon, or if the combined payments would be hard to manage, a single new first mortgage may cost less overall. A broker can compare both options.
Why second mortgages cost more
The second lender only gets paid after the first. That extra risk usually means a higher rate and fees than a private first mortgage. See what drives private mortgage rates.
How much can you borrow?
Second-mortgage lenders look at combined loan-to-value: your first mortgage plus the new second mortgage, as a share of the home’s value. Secured lines of credit count too. See loan-to-value.
Common uses
- Consolidating high-interest debt
- Paying property tax or CRA arrears
- Paying out a consumer proposal
- Funding a renovation that adds value
- Bridging until a property sells
Risks to understand
- Two payments instead of one
- Your first-mortgage terms still apply. Missing a payment on either can cause problems with both.
- Some first mortgages restrict second mortgages. Your lawyer should check.
- Renewal timing. If your first mortgage renews during the second’s term, your options at renewal may be affected.
Get both options compared
A licensed broker can compare a second mortgage with a full refinance and show you the total cost of each.
This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.