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A second mortgage is an additional loan (over and above your first mortgage) that is secured against the equity in your property. “Second” indicates that the loan has second priority after the first mortgage. In order to obtain a 2nd home mortgage, you must have equity in your home.

Equity is the value of your home minus any outstanding loans that use your home as collateral, such as a first mortgage. For example if your home value is $200,000 and the outstanding loan balance is $120,000, then you can borrow against the $80,000 (your equity) through a second mortgage loan.

It's important to point out that a second mortgage is a mortgage against your existing property, not a new mortgage on a second home. If you're looking for a new mortgage on a second home or other property, please visit our mortgage page.

The term of a second mortgage can range from several years to as many as 35 years in length, depending on the size of the loan and the repayment agreement with the lender.

Other synonyms: home equity loan, and home equity line of credit debt consolidation loan. Both refer to the same financial product which uses equity in your home as security for a loan.

2nd Mortgage Rates

2nd mortgages have higher interest rates than first mortgages due to the fact that there are greater risks for the lender. The difference in rates for a second mortgage versus a first mortgage is typically a few percentage points above that of a first mortgage, but is still considerably lower then most other forms of credit available.

Like first mortgages, second mortgage interest rates can be variable and fixed.

• A fixed interest rate will remain fixed for the duration of the term and monthly payments will not not fluctuate.
• Variable Rates can change several times in a year. Rates may go up or down, meaning the portion paid to your principal from your monthly payments may go up or down as well. Historically variable rates have been shown to save money over the long term, but you must be prepared to pay more if the rates go up.

Get a second mortgage quote through Kanetix - compare lenders and loan rates one to another.

Second Mortgage Home Loan Uses

There are many uses for a 2nd mortgage loan in Canada. Some of which include:

• Home Renovations – one of the most popular reasons for 2nd mortgage financing. A second mortgage can help pay for a new kitchen, bathroom, living room, new roof, basement renovation, extra space, backyard remodeling and more, which may increase the value of your home as well.
• Education – are your children getting close to college / university age? Do you need money to pay for tuition? A second mortgage may be the answer.
• Grow or Help your Business – if you own a business, a second mortgage may be the answer to various cash problems. You can use the money to grow your business or help with inventory financing or other cash requirements.
• Debt Consolidation – a second mortgage can assist with payments for credit card bills, car loans and other debt obligations. You can take out a second mortgage with one (lower) monthly payment and use the funds to pay off your outstanding bills.

You can also use second mortgage to purchase another property such as a cottage or vacation home. Simply take out a 2nd mortgage for the amount you require and then use that money as a down payment for the additional property.

Second Mortgage Qualification Requirements and Closing Costs

In order to qualify for a second mortgage loan, you must have equity in your home, a low Total Debt Service Ratio (TDS), and you must have a good / excellent credit score.

• Equity – having home equity is key to getting a second mortgage loan in Canada. In fact, you must own more than 5% of the property to even be considered for a second mortgage. For example, if you home is valued at $100,000, and your first mortgage is $90.000, then your equity is $10,000. You could then borrow against any equity surplus that is over and above the 5% minimum requirement (which in this case, would be $5000).
• Credit Score – your credit score tells second mortgage lenders how you manage your debt and finances. To obtain a second mortgage loan you require a good credit score. Your credit score is also the determining factor in the interest rate that you pay. A high credit score gets the lowest mortgage rate. Look after your credit history if you want low mortgage rates.
• Employment – A solid employment history is required, at least 2 years of consistent employment is the norm.
• Documentation – after you obtain your free second mortgage rate quote through Kanetix and select a the mortgage lender with the lowest interest rate, you have to obtain the actual loan. The lender will require some or all of the following information or documentation: Name, address, phone, SIN, employment verification, pay stubs, tax forms, ID's, first mortgage information, other debt (credit cards, car loans, etc), and your property title information.

Closing costs on a second mortgage are considerably less than with other mortgages and typically include: a fee to put a second lien on the property, as well as a solicitor fee. Closing costs on second mortgages are the same regardless of whether a variable or fixed rate mortgage is chosen.

A second Mortgage for a Second Home

By using the existing equity in the property that you already own as collateral, you may be able to borrow to finance the purchase of a new property. There are of course many factors to consider. One of the best ways to find out what is possible, is to get a quote through Kanetix to see what is available and compare mortgage rate offers. Begin by entering your postal code in the input box at the top of this page.

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