Second Mortgage Loans in Canada

Second mortgages are normally obtained in two ways:

• You can obtain a traditional second mortgage.
• You can obtain an Equity Line Visa Card.

What is a second mortgage?

A second mortgage is a another mortgage, smaller in size, that is given to the homeowner when the home or property in question already has a first mortgage.

In some cases it's actually cheaper to obtain the Equity Line Visa or even refinance your entire mortgage!

To borrow money against a second mortgage you are required to have equity in your home. Home equity is the value of your home, minus any money owed against it. For example, if your home is worth $200,000 with a $130,000 mortgage, then your home equity is $70,000.

• Second mortgage closing costs can can range from 2% to 5% of the amount you borrow, depending on the lender.
• You can use a second mortgage for debt consolidation or for major purchases.
• Your credit score affects your second mortgage interest rates.
• A higher credit score will result in lower mortgage interest rates while a lower score means higher mortgage interest rates.
• Second mortgage loan interest rates are higher than first mortgage loan interest rates - but are still lower than most credit card and car loan interest rates.
• Second mortgage terms can be from 1 to 35 years, depending on the lender.
• The second mortgage will be secured by your home.

A Second Mortgage is limited by your Home Equity

A 2nd mortgage can only rise to 85% of the value of your home, but in most cases it will be from 75% to 80%. When you deduct the balance of the first mortgage, it leaves you with your borrowing amount. Here's an example. If your house is worth $100,000 then you can only borrow up to a maximum of 85% of its value. This would leave you with $85 000. If your first mortgage is $40 000, then you would be able to borrow $45,000 (the amount left after you deduct your first mortgage from the $85,000). Remember that there will be closing costs - and if you need to borrow them as well, they will be deducted from the money advanced to you on closing.

Second Mortgage Interest Rates

Second mortgage rates are quite a bit higher compared to first mortgage loan interest rates. Mortgage lenders do not post second mortgage interest rates to the public as they differ from situation to situation. Have a mortgage broker assess your personal situation to decide if a second mortgage is your best option. Or, you can apply now.

Second Mortgage Payments

Mortgage payments for second mortgages are arranged before the time of closing. In most cases, direct withdrawl from your current banking institution is used.

If you wish to see what your second mortgage payments will amount to, try our mortgage calculators.

Qualify For A Second Mortgage

To qualify for a second mortgage you must have more than 20% of the equity in your home. You must be able to pay for the mortgage without exceeding your Total Debt Service Ratio (TDS). You can qualify if you have a damaged credit score, but you will pay a higher rate of interest than qualified borrowers.

Credit Score

Your credit score shows how likely you are of fulfilling your financial obligations on time. You can qualify if you have a damaged credit score, but you will pay a higher mortgage loan interest rate than better qualified borrowers.

Employment

The longer that you have spent working with one employer, the more secure your job looks to the lender - therefore the easier it is to qualify for a second mortgage. At a minimum, you must be off your probationary period and have a previous employment history of 6 consecutive months or more.

Documents

Basic mortgage documents will be requested such as your Social Insurance Number (SIN), proof-of-employment letter, first mortgage documents and bank statements. Visit our Mortgage Documents page to see what other documents may be requested by the lender.

Second Mortgage Closing Costs

Closing costs can run approximately from 2% - 5% of your second mortgage. Closing costs include, but are not limited to:

• Appraisal fee
• Legal fees
• Title search
• Title insurance
• Home survey
• And more.

To learn more about mortgage closing costs visit our Closing Costs page.

Debt Consolidation utilizing your Second Mortgage

If your debt is weighing you down and a reduction in your monthly payments would open up your cash flow, you should consider consolidating your debt through a second mortgage. By utilizing a second mortgage to consolidate your debt, your monthly payments can go down by as much as 50% due to lower interest rates and longer repayment schedules. Find out how to increase your monthly cash flow by contacting us right now.

For example...

Adriana owns a house and has a $20,000 credit card debt. She wants to reduce her monthly payments that go towards credit cards. She can borrow against a second mortgage to pay off credit cards and significantly lower monthly payments.

The above example is a 10-year second mortgage at an 8.5% interest rate. Credit calculation example uses 21% compound interest rate, with 2.78% minimum monthly payment calculation. Monthly payment in the example reflects the first month.

In the example, the savings are $310 per month - which is more than 50%. Bottom line: A second mortgage is perfect for debt consolidation!

What is the mortgage interest rate?

To find the best up-to-date interest rates on home loans, check the rates on the sidebar on the right-hand side. You can also click here to see interest rates for mortgages.

PLEASE NOTE: Mortgage interest rates are subject to change without notice. We always attempt to maintain accuracy on our website, however, mortgage information on this site should be used only as a guideline. Please consult one of our mortgage professionals BEFORE taking any action.