Second Mortgages

Second mortgages are a popular option in Canada. 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 rates of interest, 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. With Smarter Loan’s online directory, you can search for reputable providers in Canada and their rates. 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.

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Top Second Mortgages Providers in Canada

Interest Rate
$20,000 - $10 Million
6 months - 5 years
$10,000 and up
Varies (Home Equity Loans)
12 Months
$20,000 - Unlimited
12 to 60 months
$50,000 and Up
1 - 10 years
$50,000 and up
Rates starting at 5.44%
5 years

What is a Second Mortgage and How Does it Work?

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, it 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 rates of interest 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 it 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 it 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 online bad credit loan 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 rates of interest and a fee at alternative and private lenders.


Why You Might Choose a Second Mortgage

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 it 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.

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The Benefits of a Second Mortgage

Taking out a second mortgage can offer several advantages, especially for homeowners looking to unlock the value of their home equity. It serves as a feasible way to borrow money, often from a private lender, to fulfill various financial needs.

One of the primary benefits of a second mortgage is the ability to access home equity. The home equity loan or second mortgage allows you to borrow against the value of your home. This is particularly useful when you need a significant amount of money for large expenses, such as property tax arrears, home improvements, or a down payment for another property.

Second, a second mortgage can be used to consolidate debt. Instead of managing multiple loans with varying mortgage rates, you could use a second mortgage to pay off these debts, leaving you with one manageable monthly mortgage payment. This strategy can potentially lower the amount you pay each month and simplify your financial management.

Furthermore, second mortgages can offer competitive mortgage rates compared to other types of loans, especially if you have a good credit rating. Even homeowners with bad credit can secure a second mortgage, though the rates might be higher.

Remember, a second mortgage is an additional mortgage on top of your existing mortgage. It doesn’t eliminate or replace your first mortgage, but instead, it is a separate mortgage loan with its mortgage balance and mortgage payments.

While major banks are commonly used for first mortgages, private mortgage lenders and mortgage brokers often handle second mortgages. These private lenders might offer more flexible terms and conditions, especially for borrowers with unique circumstances.

However, while a second mortgage presents potential benefits, it’s important to remember that it involves risks as well. Second mortgages are loans secured against your home. Failing to make mortgage payments can lead to foreclosure. Therefore, it’s crucial to carefully consider your financial situation and consult with a second mortgage lender or a professional mortgage broker before getting a second mortgage.

Disadvantages of Second Mortgages

While a second mortgage can offer several benefits, it’s also crucial to understand the potential risks and drawbacks associated with this form of borrowing.

One key risk is the possibility of increased debt. While a second mortgage can be a useful tool for debt consolidation or for paying off high-interest debts like credit cards, it’s important to remember that it still represents additional debt. If you use your second mortgage as a revolving credit line or take out a lump sum, you could end up increasing your overall debt load.

Secondly, second mortgages often carry higher rates compared to first mortgages, particularly if you have a lower credit score or bad credit. This could mean higher monthly payments. Additionally, if you choose a mortgage with variable rates of interest, your mortgage payment could increase if mortgage rates rise.

Furthermore, securing a second mortgage requires sufficient equity in your home. The estimated property value, the first mortgage balance, and any existing second mortgage are all considered in determining your eligibility. If your property value decreases, you might find yourself owing more than your home is worth, a situation known as being “underwater.”

Foreclosure risk is another significant concern. Like your existing first mortgage, your second mortgage is secured by your home. If you miss mortgage payments, whether on your first or second mortgage, the lender has the right to foreclose on your property. This risk is further compounded if you find yourself in property tax arrears.

Additionally, private mortgages, which are often sought for second mortgages, can sometimes include legal fees or other additional costs that aren’t typically associated with mortgages from traditional lenders.

Getting a second mortgage also requires a new mortgage commitment, which can involve time and added complexity. It’s important to work with an experienced mortgage broker who can guide you through the process and provide mortgage solutions tailored to your specific situation.

Before making any decisions, it’s vital to thoroughly assess your financial situation and to consider all your options. Consult with your current mortgage provider or a first mortgage lender to understand how loans to value, mortgage work, and the average interest rate could impact your decision to take out a second mortgage.

Interest Rates and Fees: Second Mortgages

Second mortgages are an appealing option for homeowners looking to leverage the equity in their homes for a variety of reasons. However, understanding the associated rates and fees is vital before making a decision.

Interest Rates

Second mortgages typically have higher interest compared to first mortgages. This is because they pose a higher risk to the lender; in the event of default, the primary mortgage lender is paid before the second mortgage lender. Rates can vary significantly based on the lender, whether it’s a major bank, private lender, or a credit union, and the borrower’s creditworthiness.


When you take out a second mortgage, there are several fees involved. These may include an appraisal fee to determine the current value of your home, a title search fee, and legal fees. Some lenders may also charge a loan origination fee, which is a percentage of the loan amount.

Comparison with Home Equity Loans

Second mortgages and home equity loans are similar in that they are loans secured by your home. However, they differ in their interest rates and fees structure. A home equity loan usually has a lower interest rate than a second mortgage, but this rate can vary depending on the loan to value ratio, credit rating, and other factors.

The loan to value (LTV) ratio is a financial term used by lenders to express the ratio of a loan (such as a private mortgage) to the value of an asset purchased. It’s a key risk assessment tool that lenders consider before approving a loan. In the context of a home mortgage, the loan to value ratio is calculated by dividing the mortgage amount by the appraised value of the property. A lower LTV ratio typically means lower risk for the lender, potentially resulting in more favorable loan terms for the borrower.

Closing Costs

Just like with your first mortgage, you’ll likely need to pay closing costs on a second mortgage. These can include origination fees, appraisal fees, and other associated costs. Be sure to factor these into your decision-making process.

While a second mortgage can be a valuable financial tool, it’s important to carefully consider the associated mortgage rates and fees. Always compare offers from different lenders and ensure you can comfortably afford the monthly payments, along with the down payment, before proceeding.

How to Apply For A Second Mortgage

Applying for a second mortgage in Canada involves several steps. Here’s a step-by-step guide to help you navigate the process:

Step 1: Assessment of Financial Situation

Start by assessing your financial situation, including your credit rating, income, outstanding debts, and equity in your home. If you have high-interest credit cards or other higher interest debts, you might want to consolidate debt with a second mortgage.

Step 2: Research and Identify Potential Lenders

Research potential mortgage lenders, including major banks, credit unions, and private lenders. Each has its pros and cons, with varying mortgage rates and terms. Private mortgage lenders, including those who offer private mortgages, can often provide more flexible terms and are more willing to work with borrowers who have less than perfect credit. A private mortgage can be an excellent choice for people with poor credit, or significant debt.

Step 3: Consult a Mortgage Broker

Consider consulting a mortgage broker. They can provide expert guidance, help you understand the process for approval, and connect you with second mortgage lenders that fit your needs.

Step 4: Determine the Value of Your Home

The amount you can borrow with a second mortgage or home equity loan is largely based on the value of your home. You might need to have your home appraised to determine its current market value. Lenders will then use this value to calculate your loan-to-value ratio (LTV).

Step 5: Application

Once you’ve identified a suitable lender, you can apply for the second mortgage loan. The application will typically require detailed financial information, and the lender will check your credit rating.

Step 6: Loan Approval

After you submit your application, the lender will evaluate it. If you meet the lender’s criteria, they will issue a mortgage commitment, which is a formal agreement to lend you the money. The approval process varies by lender but generally takes several weeks.

Step 7: Closing

Once you’ve received approval, you can move forward with closing the loan. This will involve signing the loan documents, paying any applicable fees, and receiving your loan proceeds. You can choose to receive these funds as a lump sum, which is helpful if you plan to use them to consolidate debt, make a major purchase, or invest.

Step 8: Start Making Payments

After closing, you’ll start making monthly second mortgage payments in addition to your primary mortgage payments. Ensure you can comfortably afford both payments to prevent any financial hardship.

Remember, taking out a second mortgage is a significant financial commitment. Make sure to consider your financial situation carefully and understand all the terms and implications before moving forward.

Eligibility Criteria for a Second Mortgage

To qualify for a second mortgage in Canada, there are several eligibility criteria that lenders, including major banks, credit unions, and private lenders, typically consider. These criteria include your credit score, income, and the amount of equity in your home.

Your credit rating plays a significant role in the process of getting a second mortgage. Lenders look at your credit history to determine your reliability in making mortgage payments. A strong credit score can get you better mortgage rates, while a lower score might still qualify you for a second mortgage, but with a higher interest rate. Even if you’ve missed mortgage payments in the past or have high-interest credit card debt, some private mortgage lenders may still consider you for a second mortgage loan.

Income is another critical factor. Lenders need to see that you have a reliable income source to make your monthly mortgage payments. This income can come from employment, self-employment, rental income, or even pensions.

Most importantly, you must have enough equity in your home. Equity is the value of your home minus the balance of your existing mortgage and any other loans secured against your property. A home equity loan is a type of second mortgage, that allows you to borrow money against this equity. The more equity you have, the more you can potentially borrow.

Lenders will also look at the loan-to-value ratio (LTV), which is the amount you owe on your primary mortgage and second mortgage loans compared to the value of your home. Most lenders will only allow you to borrow up to a certain percentage of your home’s value, including your existing private mortgage.

Lastly, the specifics of your existing mortgage can also affect your eligibility for a second mortgage. Your existing mortgage lender might have terms that impact your ability to take out additional mortgages.

It’s recommended to consult with a mortgage broker or second mortgage lender to understand how these factors apply to your particular situation. A broker can help navigate the mortgage work, guide you on the path to consolidate debt if needed, and help you find the best interest rate and terms for your second mortgage.

Second Mortgage vs. Home Equity Line of Credit

Both second mortgages and Home Equity Lines of Credit (HELOCs) are ways to leverage the equity in your home to borrow money. However, they function differently and serve different needs.

  • Lenders: You can get a second mortgage from various sources, including major banks, credit unions, private lenders, and mortgage brokers. The terms and rates may vary based on the lender.
  • Interest Rates: Second mortgages typically carry higher interest rates than first mortgages but lower rates than credit cards or personal loans. The rate is usually fixed, providing predictable monthly payments.
  • Repayment: Second mortgages have a set repayment schedule, meaning you’ll know the exact date when you’ll be free of this debt.
  • Fixed Amount: When you take out a second mortgage, you receive a one-time lump sum, which can be useful for large expenses or investments.

Home Equity Line of Credit (HELOC)

A Home Equity Line of Credit (HELOC) is a revolving line of credit that allows you to borrow money as needed, up to a certain limit.

  • Flexible Access to Funds: With a HELOC, you can borrow money as needed, making it a flexible option for ongoing expenses.
  • Interest Rate: HELOCs typically have variable interest rates, meaning your payments could increase if rates rise.
  • Repayment: Unlike a second mortgage, a HELOC has a draw period, during which you can borrow money, and a repayment period, during which you must repay the borrowed funds.
  • Lenders: Similar to second mortgages, HELOCs can be obtained from a variety of lenders, including banks, second mortgage lenders, and private lenders.

Whether a second mortgage or a HELOC is right for you depends on your financial situation, how you plan to use the funds, and your comfort level with variable interest rates. Always consult with a financial advisor or mortgage broker to make the most informed decision.

Take advantage of the benefits of a home equity line of credit and unlock the potential of your property.

Frequently Asked Questions About Second Mortgages

Who can apply for a second mortgage in Canada?

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 and financial history checks. The more equity you have in the property being mortgaged, the better your chances of approval.

What can a second mortgage be used for?

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 the funds 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.

How much money can I borrow via a second mortgage?

The amount you can borrow 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.

Can I get a second mortgage if I have bad credit?

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.

What’s the typical interest rate on a second mortgage?

Interest rates 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%.

What’s a good alternative to a second mortgage?

There are a few alternatives available. 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 loan (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.

How does a second mortgage affect my original mortgage?

It 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.

Will a second mortgage hurt my credit?

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.

Where can I get a second mortgage from?

They 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 it from the same private lender as your first mortgage, so you can shop around for the best deal.

What kind of property can I get a second mortgage on?

Most personally-owned properties are eligible (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.

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