Answering Your Frequently Asked Questions About Second Mortgages in Canada


It can be downright confusing to acquire a second mortgage. You already know quite a bit about the mortgage process from having acquired your first mortgage, so you get to walk into this scenario with a bit of knowledge ahead of time. However, there are some differences between obtaining the two different types of mortgages. In this brief FAQ guide, we’ll explain these differences for you.

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Second Mortgage FAQ

Q: What is a second mortgage, anyway?
A: A 2nd mortgage is when a homeowner gains access to the equity of their home via a loan that is secured by the home and gets added on top of the first mortgage.

Q: What is equity?
A: “Equity” refers to how much of your home you have actually paid off. Over time and as you make more payments toward the principal of your mortgage, you will accrue greater equity.

Q: What is the purpose of a second mortgage?
A: People obtain second mortgages for a variety of reasons. The access to one’s home equity grants them the ability to pay off high-interest credit card debt, make renovations to their home, or make other hefty investments that will benefit them in the future.

Q: What is the interest rate on a second mortgage like?
A: Second mortgages typically have higher interest rates attached to them than first-time mortgages do. This might seem alarming but keep this in mind: second mortgages usually have much lower interest rates than many credit cards.

Q: What types of second mortgage exist?
A: In Canada, homeowners can get one of two different types of second mortgages: home equity lines of credit (or HELOC) or a lump sum equity loan.

Q: What is a HELOC?
A: Homeowners with equity that they can borrow from have the option of doing so on a need-to-withdraw basis. Essentially, they can access the funds available to them as they are needed, rather than getting it all at once via a lump sum payment.

Q: What is a lump sum home equity loan?
A: If you get your available equity sent to you via a single lump sum payment, this is a home equity loan of this type. This is the standard means of accessing home equity and can be used in the same number of ways that a HELOC can – which is infinite.

Q: How do I qualify for a second mortgage?
A: Your lender will need to assess your financial situation including your credit score, debt-to-income ratio, how much equity you have already gathered, and your employment history. This is to ensure that you are capable of making the payments on your second mortgage, as well as your initial mortgage.

Q: What does it cost to get a second mortgage?
A: If you get a second mortgage you will be on the hook for a number of fees, including appraisals, closing costs, legal fees and credit checks.

Q: What happens if I can’t repay my second mortgage?
A: This brings us to the biggest risk associated with second mortgages: foreclosure. If you are unable to make all of your monthly payments on time, your home can be foreclosed on as a means of repaying your lender.

Q: Does a second mortgage alter a first mortgage?
A: No. Getting a second mortgage poses no changes to the terms and conditions of your existing mortgage.

Q: Will I need to get a second mortgage from the same lender that I got my first one from?
A: No. You are free to shop around as you look for a second mortgage.