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Second Mortgage In Canada

Second Mortgage in Canada: Get Approval

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If you are a Canadian homeowner, you might have heard about second mortgages in Canada before. But do you really understand what a second mortgage is?

For those, who don’t know, a second mortgage is a type of loan that is secured by your home, similar to a first mortgage provided by a traditional bank. As time passes, you build up equity in your house, and a second mortgage enables you to use the equity you have built up.

Despite the prominence of the second mortgage, many still do not understand or properly leverage this for their benefit. So, in this guide, we will see what a second mortgage is? When do you need it? And how do you get approved for this? If you are interested in knowing all these questions, then keep reading.

Read More: Canadian Mortgage Stress Test: How to Prepare?

What Is A Second Mortgage in Canada?

A second mortgage is a loan taken against a property that already has a home loan on it. In simple words, if you are unable to pay your mortgage payment, your lender has the right to seize your property. However, when you take the second mortgage on the same property, the chance of seizing goes out of the scene.

Unlike auto loans or student loans where you need to use the money for that specific purpose, second mortgage money can be used for almost anything. It does not restrict you to pay for one specific thing. Surprisingly, the second mortgage offers interest rates that are much lower than credit cards – making second mortgages an appealing choice to make.


Before delving into the details of a second mortgage, it is important to learn about home equity. Home equity determines how much money you can get when you take out a second mortgage.

Unless and until your mortgage loan has a balance of zero, a lien remains on your home. This gives the lender the authority to take your property back if you default before you finish paying back the loan. Once you pay off your principal loan over time, the portion of the loan that you have paid off is called equity.

Calculating home equity is easy. Just subtract the amount you paid from the principal balance of your home from the total amount you borrowed and you have home equity.
For instance, if Joe bought a home worth $200,000 and paid off $60,000 worth of equity including a down payment. Now, Joe has $60,000 worth of equity in his home. It is important to know that the interest you pay does not count in the home equity.

How Does Second Mortgage Work?

Home equity is a valuable asset, but the problem with it is, you can use it like cash. However, a second mortgage allows you to use your home’s equity and put it to work. Instead of having money tied up in the shape of home equity, you have it in cash with a second mortgage to fulfill your expenses.

The requirements of getting a mortgage depend on the lender you work with. But, the most basic requirement of a second mortgage is that you have some equity built up in your home. The lender typically allows you to take out a portion of this equity, depending on what your home is worth and the remaining loan balance on your first mortgage. By doing so, you have a certain amount of equity left in your home.

To get approval for a second mortgage, a credit score of at least 620 is required. Remember that a higher score means better rates. You will also need to have a debt to income ratio and that should be lower than 34%.

Important Things to Know About Second Mortgage

Here are a few important things to consider about the second mortgage.

1. The Second Mortgage in Canada are Secured Loans

When a mortgage is secured, it is considered as a home being used as collateral. In the event that homeowner is unable to pay back the loan, the lender may the option to initiate a Power of sale or enact a loan against the property to ensure that the outstanding debt is paid.

2. Faster turnaround time

One of the greatest advantages of a second mortgage is the minimum amount of time required to get access to required funds. The appraisal report is also completed quickly in days instead of weeks.

3. The Second Mortgage Has Fees Involved

Although a second mortgage is a great option, it does come with a price. There is a fee that has to be paid, that is why you should always talk to a mortgage broker before getting a second mortgage.

4. The Second Mortgage is Better with Bad Credit

One of the best things about a second mortgage is that you can get it even with a bad credit history. Depending on the amount of equity in your home and the repayment history of the current mortgage, a borrower can potentially find a lender that might approve your second mortgage without much considering your credit score.

5. Private Lenders are not Strict

All banks that are regulated federally need to operate under specific laws and guidelines, a large portion of borrowers often get disqualified from getting access to the equity. In such a situation, private lenders are the best option to consider.

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The Bottom Line

It is indispensable to look at all available options before making a financial choice. If you feel – at any point – any hesitancy in picking your choice, always contact a professional. A good rule of thumb is to never make a big financial decision when you feel pressured or rushed.

Since you are reading about second mortgages, there is a high chance you are in a bad financial condition and need quick money. In such a scenario, picking the right choices is very important and it is not possible without a trustworthy broker. If you are concerned about your decision and do not know any of the helpful brokers, reach out to us here and we will help you meet the right person.

At Lionsgate, we specialize in helping people obtain funding for private mortgages and second mortgages for land purchases as well as for other real estate transactions. If you are looking to get a second mortgage in Canada, leave us a message and we will try to connect you with local realtors and sourcing for financing.

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