Second Mortgage

A second mortgage is an additional loan taken out on a house that already has a mortgage. Rates for second mortgages will always be higher than first mortgages because there is more risk for the lender.

Second mortgage lenders are in second position, meaning if the homeowner defaults on their payments the lender in first position gets paid out first. Therefore, there is more risk that the second lender will not be paid out, resulting in higher rates for borrowers.

Why You Might Consider a Second Mortgage

There are a number of reasons a homeowner might consider taking out a second mortgage on their home. These include:

  • Refinancing to consolidate high interest debts
  • Paying for unexpected expenses
  • Funding home renovations
  • Repaying and eliminating judgments or unsettled collections
  • Funding investments in stocks, mutual funds, or business investments

Whatever your reason for considering a second mortgage, we’re here to help. When you meet with a mortgagestogo.ca agent we’ll look over your financial situation and determine whether a second mortgage is right for you. We’ll ensure you that you obtain the money that you are looking for, and allow you to maximize the value of your home.

Additional Information

There are a few other things to consider when thinking about a second mortgage:

  • A second mortgage does not replace your existing first mortgage. It is an additional mortgage on top of your first mortgage. You’ll now be paying two different lenders (or repaying two separate debts to the same lender).
  • Borrower qualifications are usually based more on home equity, rather than credit and income. This can be advantageous for those you need a loan but have been unable to get approved through traditional sources.
  • Most second mortgages are interest only payments and have 1-year terms.
  • Up to 90% of your home’s value can be used to arrange a second mortgage.

An Alternative to a Second Mortgage

If you need a larger sum of money it may make more sense to refinance your first mortgage, rather than take on a second mortgage. Assuming the pre-payment penalty isn’t too high you could pay-out your current mortgage and take on larger mortgage to get the funds you need.

For example: Let’s say you have a $200,000 mortgage and you need $50,000. If you’re willing to pay the pre-payment penalty you could refinance a new mortgage for $250,000. Upon closing you would receive $50,000. Your mortgage rate might increase slightly, but that rate would still be far lower than the rate you would receive with a second mortgage or a bank loan.

However, if you only need a small amount of cash a second mortgage might be more beneficial. The rate you receive with a second mortgage will be much higher, but you will likely be able to pay off the loan fairly quickly if it is for a small amount. In this case you’ll save money in the long run by taking on a second mortgage rather than increasing the rate of your first mortgage.

When you meet with a mortgagestogo.ca agent we’ll be able to review your financial situation and recommend the best option for you.