What is a second mortgage and when would I use one in Ontario?
A second mortgage is an additional loan secured against a property that already has a mortgage on it. Because the first mortgage lender has priority on the proceeds if the property is sold or foreclosed, the second mortgage lender takes on more risk and typically charges a higher interest rate to compensate.
Homeowners in Ontario use second mortgages for a variety of reasons: to access home equity for renovations, to consolidate high-interest debt, to bridge a gap in purchase financing, or to avoid breaking an existing mortgage and paying a large penalty. They can be arranged through banks, mortgage companies, or private lenders, each with different qualification standards and costs.
Interest rates on second mortgages are generally higher than on first mortgages, and many come with lender fees and higher legal costs. A private second mortgage in particular can be expensive when all fees are accounted for. Before taking out a second mortgage, it is worth comparing the total cost against alternatives like refinancing, a home equity line of credit, or selling the property. A lawyer and a mortgage broker together can help you assess the full picture before you commit.
Key takeaways
- A second mortgage sits behind your first mortgage and carries higher risk for the lender.
- Rates and fees are usually higher than for first mortgages.
- Common uses include accessing equity, bridging gaps, or avoiding penalty on an existing mortgage.
- Compare total costs against refinancing or a HELOC before deciding.