Overview
A second mortgage in Canada is an additional loan secured against your property that already has a primary mortgage. This allows homeowners to access home equity for purposes like debt consolidation, renovations, or investments. Second mortgages come with higher rates and specific qualification requirements compared to first mortgages.
How Second Mortgages Work in Canada
- Definition: A second mortgage is a loan registered against your home in second position, behind your primary mortgage. If you default, the first mortgage lender is paid first.
- Types:
- Home Equity Loan: Lump-sum, fixed or variable rates.
- HELOC (Home Equity Line of Credit): Revolving credit, only pay interest on what you use.
- Loan Amount: Generally, you can borrow up to 80% of your home’s appraised value minus your existing mortgage balance.
Key Features and Requirements
How Much Can You Borrow?
- Maximum borrowing is typically up to 80% of your home’s value (sometimes up to 95% in insured scenarios).
- Example: If your home is worth $600,000 and you owe $350,000, max available for a second mortgage is:
- $600,000 × 80% = $480,000
- $480,000 – $350,000 = $130,000 available.
Qualification Criteria
- Equity: Most lenders require at least 15–20% equity in your home.
- Income: Stable income to support payments on both mortgages.
- Credit Score: Higher scores offer better rates, but private lenders may accept lower scores.
- Appraisal: Likely required to confirm property value.
- First Mortgage Lender Approval: May require authorization from your first lender.
Second Mortgage Rates and Fees
| Typical Range | Notes |
|---|
| Interest Rate | 6.5% – 14% | Higher than first mortgages due to increased risk |
| Term Length | 1 – 5 years | Usually shorter than primary mortgages |
| Fees | $1,000 – $3,000+ | Includes appraisal, legal, admin, title insurance |
- Rates are higher than first mortgages because the second lender is repaid after the first in case of default.
- Most major banks offer HELOCs, but fixed-term home equity loans are often available from private lenders or mortgage brokers.
Major Canadian Bank Offerings
| Bank | Second Mortgage Product | Key Features |
|---|
| RBC | HELOC, second property options | Flexible line of credit, second home financing |
| Scotiabank | Second home mortgage | Mortgage for secondary properties |
| National Bank | Second home/cottage mortgage | Up to 95% financing for second property |
- HELOCs are the most common second mortgage product at major banks.
- For lump-sum home equity loans, private lenders or specialized broker networks are often used.
Provincial and Regulatory Variations
- Ontario: Widely available; many private lenders operate here. Land transfer tax applies on new purchases.
- Quebec: Notaries are always involved in property transactions.
- British Columbia: Market is active; property transfer tax applies.
- Combined Loan-to-Value (CLTV): Some insured programs (e.g., Sagen) allow up to 95% CLTV on purchases under special conditions.
First-Time and Other Government Programs
- CMHC/Sagen/Canada Guaranty: Insurance may be required if CLTV exceeds 80% (not typical for second mortgages, but some insured products exist for purchases).
- First-Time Home Buyer Incentive: Not directly applicable to second mortgages, but can impact overall affordability.
- Home Buyers’ Plan: For RRSP withdrawals on first purchase, not second mortgages.
- Land Transfer Tax Rebates: Available for first homes in some provinces, not for second mortgages.
Second Mortgage vs. Refinancing
| Feature | Second Mortgage | Refinancing First Mortgage |
|---|
| New Loan? | Yes, second position | Replaces original mortgage |
| Typical Rate | Higher | Lower |
| Max Amount | Up to 80% (sometimes 95% CLTV, insured) | Up to 80% |
| Use Cases | Quick cash, keep first mortgage | Lower rates, consolidate debts |
| Lender Approval | May need first lender approval | New mortgage contract |
Next Steps & Recommendations
- Compare rates and products from multiple lenders, including major banks, credit unions, and private lenders.
- Use theratefinder to compare current second mortgage and HELOC rates from top Canadian lenders. Their multi-step application process ensures competitive offers tailored to your needs. Start your personalized application at theratefinder.ca/onboarding/email.
- Consult a mortgage broker if you have less-than-perfect credit or need a specialized solution.
- Review all fees and terms before signing, including prepayment penalties and legal costs.
- Check for any restrictions in your first mortgage contract regarding registering a second mortgage.
Summary
A second mortgage in Canada lets you borrow against your home equity, usually up to 80% of your property value, at higher rates than a first mortgage. Products include home equity loans and HELOCs, with qualification based on equity, income, and credit. Shop and compare with theratefinder for the best rates and terms. Always review all costs and requirements, and consult an expert for tailored advice.