Smarter Loans Inc. is not a lender. Smarter.loans is an independent comparison website that provides information on lending and financial companies in Canada. We work hard to give you the information you need to make smarter decisions about a financial company or product that you might be considering. We may receive compensation from companies that we work with for placement of their products or services on our site. While compensation arrangements may affect the order, position or placement of products & companies listed on our website, it does not influence our evaluation of those products. Please do not interpret the order in which products appear on Smarter Loans as an endorsement or recommendation from us. Our website does not feature every loan provider or financial product available in Canada. We try our best to bring you up-to-date, educational information to help you decide the best solution for your individual situation. The information and tools that we provide are free to you and should merely be used as guidance. You should always review the terms, fees, and conditions for any loan or financial product that you are considering.
Canada has always been one of the better places to live in the world. A high standard of living and developed metropolitan cities has created a demand in the housing market all around Canada. The country is considered one of the best places to raise a family and with that considered, many look for a second mortgage in order to continue to build on their personal and business ventures. Securing a second mortgage from a fitting mortgage provider is crucial first step. As there are many options out there with differing interest rates, finding a tool that can help you screen and compare each provider can be very beneficial.
Smarter Loans has the resources to help you narrow down the choices and assist your search for a second mortgage. With Smarter Loan’s online directory, you can search for reputable providers in Canada and their second mortgage rates. All of the providers would be displayed on one webpage so screening and selecting a provider can feel effortless. Using the online directory can save you time researching in person, as Smarter Loans can provide the needed information for a second mortgage so that the process can be simplified.
When you have selected a provider suited for you, go ahead and click “Apply Now” next to the name of the desired provider. Complete a quick questionnaire by answering a few questions to ensure that you may qualify. On the other hand, pre-apply with Smarter Loans and we can select a provider based on your needs. This way you can move forward with your second mortgage in moments so that you can focus on your other priorities.
We can help connect you with the top second mortgage and mortgage refinancing providers in Canada.
A second mortgage is additional mortgage taken out on a home that already has a mortgage. It’s called a second mortgage based on the fact the mortgage was taken out second on the same property (i.e. a subsequent mortgage taken out after that would be known as a third mortgage).
For mortgage lenders, a second mortgage carries more risk than a first mortgage since the lender is in second position on the home’s title. In the event the homeowner defaults (fails to repay the loan), the lender in first position would be paid out first, while the lender in second position would be paid out based on whatever equity is left in the property. Sometimes it’s enough to pay out the amount owing to the lender in second position, sometimes it’s not; that’s why being in second position on a mortgage tends to be riskier. To protect themselves and account for the higher risk, mortgage lenders in second position almost always charge higher interest rates than those in first position.
If you’re an existing homeowner with a decent credit score and at least 20% equity in your property, you can choose between a home equity line of credit in second position and a second mortgage. The benefit of a home equity line of credit is that in many cases you’re only required to make interest-only payments. This makes it more flexible in terms of cash flow. However, if you don’t mind being tied to regular payments, a second mortgage is worth considering. With a second mortgage, you’re required to make regular monthly payments similar to a first mortgage. However, the advantage of that is that a second mortgage is typically at a lower interest rate than a home equity line of credit. If you can afford the monthly payments, going with a second mortgage makes a lot of sense. (You also won’t have to break your existing first mortgage and pay mortgage breakage penalties.)
If you have bruised or damaged credit, these options may not be available to you. However, there may be lenders out there willing to extend you credit in the form of a second mortgage. It all depends on how much equity you have in the property (the property’s loan-to-value). Just be prepared to pay higher interest rates and a fee at alternative and private lenders.
Do you have a lot of high-interest debt? A second mortgage offers a great way to consolidate your high-interest debt. As mentioned, the rates on a second mortgage may be higher than a first mortgage, but they’re usually lower than the rates on credit cards, car loans and unsecured lines of credit. Not only could you be saving on interest, by paying down your debts, you can help improve your credit score and qualify with a prime lender at a better interest rate sooner rather than later.
The requirements for a second mortgage in Canada are much like the requirements for a first mortgage. The borrower needs to be a Canadian resident of age of majority, have sustained income, proof of employment, a certain level of equity in the home being mortgaged, and must pass the lender’s credit score and financial history checks. The more equity you have in the property being mortgaged, the better your chances of approval.
A second mortgage is a way to access a large pool of cash at a relatively low interest rate, and unlike a first mortgage, funds released through this kind of loan are not tied to the property being mortgaged. You can use funds from a second mortgage for a wide range of purposes, including: debt consolidation, home renovation and repair, paying expenses such as tuition fees and medical bills, to fund business ventures and other real estate investments, to aid with cash flow issues, and so on. There really aren’t any limits on what you can use this money for.
The amount you can borrow via a second mortgage depends on a few factors: your credit score, your income level, your existing amount of debt, the value of the property being mortgaged, the amount of equity you have in that property, and the value of your first mortgage. Generally, Canadian lenders will allow up to 80% of a home’s value to be borrowed. This means that if you calculate 80% of your home’s value and minus the amount of your existing mortgage, you can get a rough idea of your maximum remaining borrowing room.
It is possible to get a second mortgage with bad credit, although it may be harder to get approval or more expensive overall. Credit scores are always an important factor in determining loan eligibility, and those with higher credit scores have an easier time qualifying, and are likely to access more competitive interest rates. But while it’s true that some lenders have a minimum credit score threshold that borrowers must meet, other lenders do not have this stipulation, and are able to offer affordable options to those with a chequered financial history. You may have to pay higher interest rates though, or be required to have more equity in the home to qualify.
Interest rates on second mortgages vary depending on the borrower’s financial position – their credit score, amount of equity in the home, income levels, value of the first mortgage, etc. Interest rates are also affected by each individual lender’s policies and the term of the mortgage. Both fixed rate and variable rate second mortgages are possible. In Canada, the range is roughly between 2% and 15%, with the average sitting at around 6.5%.
There are a few alternatives to a second mortgage. The first is a reverse mortgage. This option is available to those approaching or in retirement, aged over 55, and with equity in their home. A reverse mortgage differs from a second mortgage in that there are no monthly payments – the balance of the mortgage and all interest is paid off once the home is sold. Up to 55% of the value of the home is available in tax-free cash via this route.
Another alternative is a home equity line of credit (HELOC). This is like a traditional line of credit, but is secured against the equity in your home. While a second mortgage provides access to a fixed lump sum, at a set fee and over a set term, a HELOC is more flexible. You can draw out any amount up to the maximum allowed, and you only pay interest on what you actually borrow. You can make multiple withdrawals, at any time during the life of the loan. In this way, a HELOC is more like a credit card, but with lower interest rates and higher borrowing amounts.
A second mortgage will not affect your original mortgage in any way. As a second mortgage is procured after the first, the original mortgage is still the primary mortgage on the home, and all of its terms remain the same.
Taking on any form of debt has an effect on your credit, although this does not necessarily have to be a negative effect overall if you make all your payments. Generally speaking, the higher your level of debt, the lower your credit, as you are considered more leveraged and therefore a greater borrowing risk. So when you first take out a mortgage, your credit suffers. However, if you prove your ability to pay back the loan with timely payments, this can actually help your credit score in the long run, as it establishes a pattern of debt repayment and reliability.
Second mortgages can be found at lenders of all types, including traditional banks and credit unions, other financial providers, and online lenders. The stringency of each provider’s eligibility requirements varies; banks are usually quite strict, while online lenders tend to be more flexible. However there are exceptions. The higher your credit score and the more equity you have in your home, the more options you will have in terms of lenders. There is no requirement to get a second mortgage from the same lender as your first mortgage, so you can shop around for the best deal.
Most personally-owned properties are eligible for a second mortgage (assuming the owner meets the lender’s equity, income and credit requirements). This includes newly constructed homes, residential dwellings of any age, multi-unit properties, and so on. For business properties, second mortgages are also available under similar terms. The only significant restrictions are that the property in question must have an estimated economic life of at least 25 more years.