Second mortgage loans
A second mortgage is an additional loan taken out on a property that is already mortgaged. For the lender, this is more risky than the first mortgage, because they are in second position on your property's title. If the homeowner defaulted on their payments and the property was taken into possession, the lender in first position would always be paid out first, whereas the lender in second position runs a higher risk of not being paid out in full. To compensate for this additional risk, mortgage rates for second mortgages are always higher than for principal mortgages.
For individuals with an existing mortgage, who have good credit and more than 20% equity in their homes, the most affordable second mortgages will be in the form of a home equity line of credit . However, if the homeowner has weaker credit and/or little equity in their property, a second mortgage through a trust company or private lender would be required.
| Lender | Example company | Product | Interest rate | Credit score | Minimum equity |
|---|---|---|---|---|---|
| Major bank | TD Bank | Home equity line of credit | 2.50% | 650-900 | 25% |
| Trust company | Home Trust | Mortgage (in second position) | 15.00% | 550-700 | 10-15% |
| Private mortgage lender | Tridac Mortgage Corporation | Mortgage (in second position) | 10.00% | Less than 600 | 10% or less |
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Why would I need a second mortgage and how do I qualify?
A second mortgage can be a great way for homeowners to consolidate debt. Though second mortgages often carry higher interest rates than first mortgages, these rates are still often lower than high interest credit cards, car lease payments or unsecured lines of credit.
If you use a second mortgage to consolidate debt and help you meet other financial commitments on time, this can improve you credit score and allow you to qualify for a mortgage with a prime lender sooner.
In order to qualify for a second mortgage in second position, lenders will look at four areas:
- Equity. The more equity you have available, the higher your chances of qualifying for a second mortgage will be. If you are purchasing a house, a larger down payment also decreases the risk that a lender takes on. Regular payments towards utilities, telecommunications, insurance, etc, and/or confirmation letter from service provider(s).
- Income. Lenders want to verify that you have a dependable source of income to ensure that you can make payments.
- Credit score. The higher your credit score, the lower your interest rates.
- Property. Because other factors are risky (i.e. your credit score), lenders need to secure their investment in case you are unable to keep up with mortgage payments.
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Which lenders offer second mortgages?
Since a lender in second position takes on more risk, not all lenders offer this type of mortgage; it will depend on the individual lender’s risk tolerance. Here is a list of the lenders who will offer a mortgage in second position. Note that each lender will have their own unique terms and conditions.
| Product | Example company |
|---|---|
| Home equity line of credit | Your current mortgage provider, TD Bank, PC Financial, Manulife |
| Mortgage (trust company) | Home Trust, Equitable Trust |
| Mortgage (private lender) | Various |
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