How Do Second Mortgages Work in Canada?

Second Mortgage in Cabbage Town Toronto

Most Canadians have heard of a second mortgage, but not everybody knows exactly what it is. In general, a second mortgage is a secured loan which is taken out on the same property before the primary mortgage has been paid off. This is possible since there can be multiple liens or loans against a property in real estate. The first registered loan is known as the first mortgage, and a second loan or lien is the second mortgage. In some rare instances, a property may even have a third or fourth mortgage registered on it.

How Second Mortgages Work

If a property owner defaults on a second mortgage, the first mortgage is legally to be the first one paid off. Therefore, second mortgages are deemed much riskier to lenders and that’s why they typically feature higher interest rates. The rate that will be offered will typically be based on a number of factors, including credit rating, loan to value, the borrower’s ability to pay – much like would be the case when applying for a first mortgage.  Homeowners will find that second mortgages vary when it comes to the length of the term. They can be as short as one year and some may even stretch out to 10 years, however shorter terms are more typical.

Second mortgages are considered to be risky by some experts as a foreclosure on a home can be the result of a defaulted loan. The holder of the second mortgage can buy out the first mortgage and foreclose the home. This means the homeowner is at the mercy of the second mortgage lender. It can sound quite complicated and it often is. This is why it’s highly recommended that you speak with a professional, licensed mortgage broker, such as those at MortgageMeister.com, to make sure you fully understand all of the intricacies involved in a second mortgage.

Benefits of a Second Mortgage

A second mortgage is beneficial to many homeowners as it can come with certain advantages. It may be a good option if you have a low-interest rate on your primary mortgage and don’t want to break it because of fees and penalties that go along with doing so. In addition, second mortgages aren’t too hard to come by, as there are numerous private and institutional lenders to be found since your home is used as collateral. The qualifications for a second mortgage are typically based on home equity rather than your income and credit rating, especially in the private lending sphere. In addition, you may be able to borrow as much as 90 percent of the value of your home with a second mortgage, depending on how marketable the lender deems your security.

This type of mortgage is appropriate if you need money quickly and you have a good amount of equity in your home. Some borrowers use the cash for things such as home improvements, educational purposes, debt consolidation, emergencies, to pay out CRA arrears, or even to purchase a second property or home. A second mortgage usually comes with higher interest rates than a first mortgage, but are typically still be lower than the rates on unsecured personal loans and credit cards.

Where to Find a Lender For a Second Mortgage

Many homeowners seek a second mortgage from the same lender who holds their first mortgage, or simply try walking into their current credit union or bank. However, these options typically aren’t the best out there, as there are other lenders institutional lenders unknown to most of the public that are far better options in terms of getting approvals, as well as approving at better rates and terms to the borrowers. If you’re looking for more information on second mortgages and/or any other type of mortgage in Canada, please contact our dedicated team at MortgageMeister.com for professional and knowledgable assistance.

MortgageMeister.com is a Toronto-based mortgage brokerage that that specializes in residential mortgages, both institutional and private, in Ontario.  Contact us today to learn more.

 

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