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Second Mortgage

Owning a home is an ongoing commitment, with new responsibilities and issues arising daily. As long as you have equity in your home, a second residential mortgage can help you fund additional expenses and other financial needs.

A first-time residential mortgage loan is typically limited to 65-80 percent of the value of your home. If your first mortgage creates an equity gap, you may be able to qualify for a second residential mortgage. A second mortgage is a secured loan against an already mortgaged property. For the lender, this is riskier than a first mortgage because they are second on the property title. The lender in the second position runs a higher risk of not being paid out in full if the homeowner defaults on their payment. Second mortgages are always higher in interest rates than first position mortgages to compensate for the additional risk.

Why Are Second Mortgages Good?

A second mortgage can be a great way to capitalize on your growing equity in your home without breaking your current mortgage commitments and taking on a prepayment penalty. 

A second mortgage can be a great way to:

  • Consolidate debt
  • Source additional down payment funds for another purchase
  • Fund renovation costs
  • Investing
  • Paying for school

Second mortgage process

Just like a first mortgage, the process to get a second mortgage is very similar, however there are different qualification requirements.  

  • Borrower(s) must apply for a second mortgage
  • Their mortgage broker will order a property appraisal from an approved appraisal company
  • Once the appraisal inspection has been complete, and the report provided, the broker can shop with second mortgage lenders to get a mortgage commitment
  • Upon the mortgage commitment being issued and signed by all parties
  • All conditions of the mortgage commitment must be satisfied, then the lender will send mortgage instructions to the borrower(s) lawyer
  • The borrower(s) then would arrange to meet with their lawyer to sign final second mortgage closing documents
  • On the date of closing, the lender will fund the second mortgage, once they are satisfied with all conditions

A good option would be to apply for a home equity line of credit. Speak to our mortgage agents to explore your options.

A private lender would be a good option to explore. Our mortgage agent would help you navigate these circumstances.

A homeowner may consider obtaining a second residential mortgage for a variety of reasons, including:

  1. Difficulty getting a personal loan (secured or unsecured), possibly due to self-employment
  2. Higher interest on the remaining balance when renewing your mortgage, possibly due to a lower credit rating than when you borrowed your first mortgage, to the point where the extra cost is comparable to borrowing additional funds.
  3. The need for a less expensive option if breaking your mortgage early incurs a high penalty.

Because your home serves as collateral, a second mortgage poses a lower risk to the lender. The interest rate on a second mortgage is higher than the interest rate on a first mortgage.

It is important to understand all your risks associated with a second mortgage and high leverage debt. Consult us to help you understand the risks and advantages to taking out a second mortgage on your property.

Getting a second mortgage

How To Get A Second Mortgage Second in Toronto, Mississauga, Brampton, Hamilton, London, Ottawa

To begin the process in getting a second mortgage, first you will need to first consult options with a mortgage broker prior to submitting an application, to preliminarily understand what is involved in the second mortgage process, including costs.

After consulting second mortgage options with a mortgage broker, all borrower(s) must complete a mortgage application and provide valid government issued photo ID. The mortgage brokerage will then order an appraisal inspection and the borrower will schedule the inspection directly with the appraisal company. It is important for the mortgage broker to order the appraisal as it must be from a lender’s approved appraisal company.

Once the mortgage broker has received a mortgage commitment with terms, and an interest rate agreeable to the borrower(s), the borrower(s) will need to sign the second mortgage approval documents and fulfill all conditions required by the second mortgage lender. Second mortgage approvals traditionally don’t have income or credit qualification requirements. Upon all conditions being satisfied, the borrower will need to arrange to meet with his/her lawyer to sign and complete the mortgage, and receive any funds, should there be monies available from the equity take out.

Requirements For A Second Mortgage

How Much Can I Borrow As A Second Mortgage in Toronto, Mississauga, Brampton, Hamilton, London, Ottawa?

There are very minimal requirements for a second mortgage. Second mortgage approvals are based upon the equity available in a property. Second mortgage lenders require a minimum of 10% to 15% equity in a property.

What are second mortgage rates?

Second Mortgage Rates Explained

Although these mortgages rates are higher than first mortgages, they are typically lower than:

  1. High-interest credit cards
  2. Car loan interest rates
  3. Unsecured lines of credit

Second mortgage rates are usually higher than first mortgage rates, as there is higher risk to a lender lending a second mortgage. Most lenders will have a set return on investment (ROI) they wish to have for their mortgage loan. The ROI yield is usually between 6% to 14%. In a second mortgage, for the investor, the ROI is comprised of the second mortgage interest rate, and a lender fee.

Second mortgage interest rates can range from 6% to 14%, depending on the loan to value and overall risk profile of the borrower. Second mortgage rates are determined by the overall risk factors to the second mortgage lender.

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