Second Mortgages in Canada
Enter the value of your existing property
Enter the amount of your the mortgage
registered on the property.
Total amount of mortgages that are registered
on the property.
Loan-to-Value Ratio (LTV)
Total loans registered on the property in
relation to the value of the property.
Total amount available as equity in the property.
Loan Amount Needed
Enter the amount that you need to
Enter the expected interest rate.
Interest rate may vary depending on the Loan-to-Value (LTV) Ratio, your credit score and other factors. With Loan-to-Value ratios under 80%, your interest rate may be as low as 3.99%. However, with LTV's above 80%, private mortgage interest rate may be as high as 11.99%.
You can either make monthly interest payments
or you can roll the interest into the Private
Mortgage Amount upfront
Make Monthly Interest Payments
Interest is Pre-Paid / No Payments
Cash You Receive
Total amount of cash that you will receive
upon taking out a Private Mortgage
The amount that you would be charged as interest
monthly throughout the duration of the mortgage
About Second Mortgages in Canada
A second mortgage is as it sounds - a loan that lets you borrow against the value of your home. Most homeowners have a mortgage, which is the money that they borrowed to purchase their home. A second mortgage, which is sometimes referred to as a home equity line of credit or HELOC, is another loan taken out on the home. Second mortgages are a great option for homeowners looking to capitalize on the equity they've earned on their home since first buying it.
Your home is arguably your biggest financial asset, and it's an asset that will ideally gain value over time. When you get a second mortgage, you are essentially using your home as collateral for a loan, which in most cases offers homeowners access to money needed for a variety of purposes. A second mortgage often helps homeowners avoid the situation of having to sell their home when they need to access their home's equity.
There are many different reasons as to why a homeowner may consider a second mortgage, including funding home renovations, consolidating debt, or making a large purchase. Whatever your reason, it's important to understand more about second mortgages before choosing to move ahead with one.
Types of Second Mortgages
Like most loans, there are different types to choose from. Here are a few of the options for those looking into a second mortgage:
Home Equity Line of Credit (HELOC) - A HELOC is a line of credit that you can draw from when you need to. You're not actually required to take the money out and use it, but you can do so if you choose. In most cases the lender sets the borrowing limit, and you can continue borrowing until you reach that limit. You could use this type of line of credit once and max out the limit immediately with one large purchase or you can use it by borrowing small amounts over time until the limit is reached. Like a credit card, with this type of loan you repay it and then borrow again.
Lump-sum Loan: Most second mortgages are one-time loans that provide homeowners with a large sum of money. In this case, like a first mortgage, the loan is repaid gradually over time through fixed payments made on a regular basis (weekly, monthly, etc). Payments are amortized over time, which means that homeowners pay a portion of the interest and a portion of the principal balance with each payment.
No matter which type of second mortgage you choose, it's important to understand that you'll need to repay both the first and the second mortgage when it comes time to sell your home.
Types of Interest Rates
As with a first mortgage, there are usually choices concerning the rate for your second mortgage:
- Fixed interest rate: The interest rate is fixed and does not change over time.
- Variable interest rate: The interest rate will change depending on the bank's posted prime rates.
It's important to talk to your lender to ensure you understand the impact of choosing a fixed or variable interest rate for your second mortgage.
Why Get a Second Mortgage?
If you're considering a second mortgage, then it's important to ensure that your reasons are valid and that the choice makes good financial sense for your individual situation. For example, many people get a second mortgage when they're looking to refinance or consolidate consumer debt. For those people paying higher interest rates on consumer debt like credit cards, car loans, or student loans, it may make more sense to get a second mortgage with a lower interest rate and then use that second mortgage to pay their debt off.
Another reason to get a second mortgage is for home renovation purposes. If you're looking to increase the value of your property by building an addition to your home, for example, then it may make sense to use a second mortgage to fund the renovation, especially if the renovation will help you make more money for your home when it comes time to sell.
Accessing your home's equity to purchase a rental income property is another reason that homeowners may decide to get a second mortgage. In this case, the income property should cover all the costs associated with the second mortgage.
These are just the most common reasons to consider a second mortgage, other common reasons include:
- Wanting to start, expand or invest in a business
- Family emergencies
- Health emergencies
- Paying for college or university tuition
- Navigating a bankruptcy
The Pros and Cons of a Second Mortgage
There are pros and cons to most things in life, and a second mortgage is no different. Examining the pros and cons and how they relate to your personal financial situation is important.
- A second mortgage is a loan that usually offers lower interest rates than other types of loans.
- You can use the money for a wide variety of purposes
- You can take advantage of the equity you've built in your home without having to sell your home first
- You can consolidate debt so that you're paying less interest which can help you become debt-free faster
- You can reduce your monthly payments on your home or make your payments more manageable
- Your house is the collateral, so you don't need to borrow against other assets (like a car).
- Foreclosure - As with your first mortgage, if you're unable to make the payments on your second mortgage your lender can take your home. This is called a foreclosure and it can put your family in serious jeopardy.
- Administrative costs - Just like with your first mortgage, there are costs associated with a second mortgage which include fees, home appraisals, credit checks, etc. These costs can add up.
- Interest: Although a second mortgage rate is usually lower than other types of loans, they're often higher than the interest rate offered for your first mortgage. The result is that over time you may end up spending a lot of money in interest on your home between your first and second mortgage.
How Do You Get a Second Mortgage?
If you think that a second mortgage might be right for you, the next step is to reach out to lenders. It's important to do your research, shop around and get quotes from different financial institutions and professionals, including:
- Your local bank
- Your local credit union
- Mortgage brokers
- Online lenders.