Second mortgages offer homeowners access to their home's equity. Often available at lower interest rates than personal loans or credit cards, second mortgage interest rate could however be higher than the interest rate charged on the original, first mortgage. Second mortgages are also sometimes referred to as a home equity loan (not to be confused with a home equity line of credit.)
A second mortgage is a loan against your existing property, not a new mortgage on a second home. The second mortgage loan is secured against the equity you've built up in your home. With a second mortgage this means there are two loans registered against your home; your first mortgage followed by the second.
Second mortgage rates
Mortgage rates on second mortgages could be higher than what you pay on your current mortgage; an important reason to comparison shop. However, the rates you compare today are not specifically for second mortgages and you will want to keep this in mind; your actual second mortgage interest rate may be higher.
Why are second mortgage interest rates higher? They are higher because a second mortgage is a loan against your existing property. The second mortgage loan is secured against the equity you have built up in your home. With a second mortgage, this means there are two loans registered against your home: your first mortgage with a lender who will be the first in charge followed by the second loan you obtained.
Additionally, most lenders will not give you a second mortgage if they are not the first lender in charge. You will want to call the financial institution where you obtained your first mortgage to verify what their policy is and to determine your options.
Second mortgage home loan uses
There are many uses for a 2nd mortgage loan in Canada. Some of which include:
Second mortgages for home renovations
Home renovations are one of the most popular reasons cited for getting a 2nd mortgage. A second mortgage can help pay for a new kitchen, bathroom, living room, roof, basement renovation, extra space, backyard remodelling and more.
Second mortgages for tuition fees
A home equity loan can help you pay for, or contribute to, your children's post-secondary education.
Second mortgages for growing your business
If you own a business, the money from a second mortgage can be used to grow your business or help with inventory financing or other cash requirements.
Second mortgage to consolidate debt
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.
Second mortgage rates in Canada
Although often available at lower interest rates than a personal loan or credit card, 2nd mortgages typically have higher interest rates than first mortgages.
How much can you expect to borrow with a second mortgage?
How much you'll be able to borrow will depend on how much equity you have in your home. Also, when calculating how much of a second mortgage you would like to take, remember that while making payments on your second mortgage, you also continue to make the payments on the original mortgage.