Second (and Third) Mortgages

What is a second mortgage?

It's another mortgage loan secured by the same property as your primary mortgage. Separate from your first mortgage, it has its own rate and terms.

'Second' or 'third' also refers to its position on your home title (behind the first mortgage). This ranking indicates the order in which the loans are paid off when the home is sold or in the event of foreclosure (due to default).

The further out from the first position, the higher the risk that the loan won't be fully covered by the sale, especially if the home is sold for less than the original amount and if fees and mortgage costs eat into the proceeds.

A second or third mortgage means a higher risk for the lender if you default, and so usually comes with higher rates and added admin fees than your first mortgage.

Where can you get a second mortgage?

You may be able to get a second or third mortgage from your current lender. However, some big banks may not offer you the option of a second mortgage.

Traditional banks and non-bank lenders can march to different rules as to whether they'll consider adding an additional mortgage on your property or be placed behind another lender's mortgage charge.

At True North, we have the flexibility to consider your second and third mortgage needs — either through your current lender or finding the right one that fits your situation.

Are second mortgages more expensive?

Second and third mortgages can come with higher mortgage rates and additional admin fees (compared to a primary mortgage application) due to the increased risk of borrower default.

Those extra costs can depend on qualifying factors, how the lender views your unique reasons for getting the additional mortgage, and the loan amount.

Why might you need a second mortgage?

Some circumstances where homeowners seek extra funds are:

• Minor home renovations or improvements
• Consolidating high-interest debts or paying back taxes
• Higher education or financial investment
• Down payment to buy another home
• Transitioning between sources of income

What do you need to qualify for a second mortgage?

Your expert True North Mortgage broker or the lender (if you went directly to your bank) will ask for your financial details and documents (such as income sources, credit score, and current debts) to assess your second mortgage application.

Your current home loan-to-value ratio is also a consideration for getting mortgage approval (i.e. the more home equity built up, the stronger your application).

What if your first mortgage is registered as a collateral charge?

Even if your first mortgage is a collateral charge — meaning it's registered on the home's title for up to 125% of the home's value — you can usually still apply for and receive a second or third mortgage (depending on the lender).

Is a second mortgage preferable to a HELOC?

Drawing needed funds from your home equity through a second mortgage works differently than drawing funds from a Home Equity Line of Credit (HELOC) attached to your mortgage.

Advantages of a second mortgage over a HELOC (that carries a floating variable rate):

• A potential solution if no HELOC availability exists
• Fixed mortgage rate for predictable payments to aid budgeting and financial planning
• Term certainty with a defined repayment period
• Refinance at renewal into one mortgage payment (HELOC payments are separate)

Disadvantages of a second mortgage over a HELOC:

• Higher initial costs through setup fees (note that True North typically charges fewer fees than some alternative or private lenders)
• Higher risk of foreclosure if you miss payments on your second mortgage
• Potential for higher rates, depending on the HELOC rate
• More time and details are involved in applying for a second mortgage versus access to an existing HELOC

Can you get a third mortgage?

Seeking funds through a third mortgage (for example, to consolidate debt) may be possible even if you already have a primary and second mortgage charge on your property.

Further restrictions may apply, however, depending on the lender. Fewer lenders may offer you this option compared to adding a second mortgage.

True North has more flexibility than a big bank to consider your third mortgage options — and typically charges fewer fees than private lending.

With us, your mortgage is more than a number.

Every homeowner has unique financial needs — and sometimes requires a customized approach that takes your details and situations into account.

True North Mortgage isn't set up like a big bank, and therefore, even though we still apply stringent guidelines and adhere to exacting regulations, we can take a personalized approach when reviewing mortgage applications and take into account more complex details while looking at the big (mortgage) picture.

Give us a shout for your second and third mortgage needs, and we'll help find the right mortgage solution.