Second (and Third) Mortgages

What is a second mortgage?

It's an additional, separate mortgage loan secured by the same property as your primary (first) mortgage, with its own rate and terms.

The number also refers to the mortgage's position on your home title — a ranking that indicates the loan/creditor payout order if the home is sold or in the event of foreclosure (due to default).

The further out from the first position (e.g. second, third, fourth), the higher the risk that the mortgage might not be fully covered by the home's sale — especially if the resale price is less than the purchase price and fees and mortgage costs eat into the proceeds.

While second or third mortgages are relatively common in the industry, because they pose a higher default risk for the lender, this product usually comes with higher rates and additional administrative 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, not all banks offer this option or allow their mortgage to be placed behind another lender's mortgage charge.

At True North, we have access to numerous lenders, giving us the flexibility to meet your second mortgage needs — either through your current lender or by finding the one that best fits your situation.

Are second mortgages more expensive?

Second and third mortgages can come with higher mortgage rates and additional admin fees than 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.

Despite the slightly higher costs, however, this mortgage product can still offer savings and less stress than managing debt payments through more expensive options, such as credit cards or personal loans.

Why might you need a second mortgage?

 Circumstances where homeowners seek extra funds can include:

• 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

There may be several other reasons for needing the cash infusion, including more complex mortgage needs — you can ask an expert broker if a second mortgage is a good solution for your situation.

What do you need to qualify for a second mortgage?

Your current home loan-to-value (LTV) ratio is a significant consideration for mortgage approval (i.e. the more home equity you have, the stronger your application).

Your expert True North broker or the lender (if you went directly to your bank) will also ask for your financial details and documents (such as income sources, credit score, and current debts) to assess your second mortgage 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 from 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
• Potential to refinance at renewal into one mortgage payment, depending on details (HELOC payments are separate)

Disadvantages of a second mortgage over a HELOC:

• Higher initial costs through setup fees (note that True North tries to find your most cost-effective solution)
• 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 accessing an existing HELOC

Is it harder to get a third mortgage?

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

Fewer lenders may offer this option compared to adding a second mortgage, and further restrictions may apply at this level, depending on the lender.

True North has more flexibility than a big bank to consider your third mortgage options — typically found through an alternative or private lender offering competitive rates and fees.

With us, your mortgage is more than a number.

Every homeowner has unique financial needs and sometimes requires a customized approach that takes their details and situation into account.

True North Mortgage has strong relationships with many lenders across Canada, and we focus on a personalized solution to help you reach your homeownership goals.

Behind every mortgage number is a homeowner who could use a great solution. For our expert brokers, no mortgage details are too complex. We stay close to your file and put you first, from beginning to end, to save you money, time, and stress.