- Both a home equity line of credit and a second mortgage are secured on your home, and you can usually borrow up to 80% of its value minus what you owe.
- A second mortgage is a second loan, you must keep paying the first mortgage too, and its interest rate is usually higher because it is riskier for the lender.
- If you cannot repay, you may lose the home, and the timing of a sale depends on the mortgage: where it has a power of sale, notice cannot be given until the default has lasted at least 15 days, while a mortgage with no such clause needs three months' default and 45 days' notice.
Homeowners who want to tap their equity often end up choosing between a home equity line of credit (HELOC) and a second mortgage. They can look similar, because both borrow against the value of your home, but they work differently in practice.
This article compares them on the points that matter most: how they are secured, how they rank, what they usually cost and what happens if you fall behind. Your own contract controls the details, so have a lawyer or licensed broker read it before you sign.
What each product is
A HELOC is a revolving credit line secured by your home. You draw what you need, repay, and can often borrow again up to a limit. A second mortgage is usually a one-time loan, paid out in a lump sum and repaid on a set schedule. The exact terms of either product depend on the lender.
A second mortgage is a second loan secured on your home, and you must keep paying the first mortgage too. Its interest rate is usually higher because it is riskier for lenders.
Side-by-side comparison
| Point | HELOC | Second mortgage |
|---|---|---|
| Security | Your home is the security | Your home is the security |
| Borrowing limit | Usually up to 80% of value minus what you owe | Usually up to 80% of value minus what you owe |
| Your first mortgage | Stays in place; check the terms of both | Stays in place and you must keep paying it |
| Rate | Set by the lender's terms; compare carefully | Usually higher than a first mortgage because of the added risk |
| How you borrow | Draw and repay as the lender allows | Usually a set amount and schedule |
Because limits and pricing vary by lender, ask each one for its full terms in writing and compare the total borrowing cost, not just the headline rate.
How a second charge ranks on title
Under the Land Titles Act, registered instruments affecting the same interest in the same parcel rank according to the order in which they are entered in the register. A second charge therefore ranks behind an earlier registered first charge. A charge's priority can be changed by registering a postponement under subsection 78(6) of the Land Titles Act.
How ranking affects your own situation is worth confirming with a lawyer. Second-mortgage interest rates are usually higher because they are riskier for lenders. If you live in a condominium, a registered condo common-expense lien has priority over every registered and unregistered encumbrance on the unit, including an earlier mortgage, but it does not have priority over a Crown claim other than a claim by way of mortgage. That priority is lost if the corporation does not register the lien within three months or does not notify registered encumbrancers.
What happens if you default
Whichever product you choose, falling behind can put your home at risk. Where a mortgage contains a power of sale, the lender cannot give notice of exercising the power of sale until the default has continued for at least 15 days, and cannot sell until at least 35 days after the notice is given. The notice must go to every person having an interest in the property.
- You can stop the lender from enforcing the acceleration clause by paying the arrears and the lender's necessary expenses, but once a power of sale has closed that right no longer applies and you are limited to a claim for damages against the lender.
- You can give written notice requiring a statement of arrears and expenses, and the lender must answer within 15 days.
- A lender selling under power of sale must take reasonable precautions to obtain the true market value of the property.
- A claim for any shortfall after a sale on the mortgage covenant must be started within the later of 10 years after the cause of action arose and 10 years after the liable person's interest in the land was conveyed.
Interest on arrears cannot be charged at a rate that increases the charge beyond the rate payable on principal not in arrears. Whether your particular contract treats a line of credit differently from a term mortgage is worth confirming with a lawyer.
What to do next
Before you borrow, work out why you need the money and how you will repay it. If the loan would come from a private lender, FSRA says private mortgages are generally a short-term option, often for one or two years, so you should have an exit strategy and consider independent legal advice before signing.
- Check any broker's licence on FSRA's public listing.
- Ask the lender for its full terms in writing, and ask any brokerage for its written disclosure of risks, lender relationships and conflicts; a brokerage must make these disclosures no later than two business days before you sign.
- Read your existing first mortgage for restrictions on further borrowing.
- Ask about fees, late-payment charges and what triggers default.
- Remember that charging interest above 35 per cent APR is a criminal offence, although some commercial loans to non-individuals are exempt.
- Have a lawyer review the documents before you commit.
Frequently asked questions
Is a HELOC cheaper than a second mortgage?
A second mortgage rate is usually higher than a first mortgage rate because the loan is riskier for lenders. How a HELOC compares depends on the lender's terms, so ask each lender for its full terms in writing. Compare the full cost, including fees, for each option.
Can I lose my home if I default on a HELOC or second mortgage?
Yes. The home is the security, and if you cannot repay you may lose it. Where there is a power of sale, the lender must wait until the default has lasted at least 15 days before giving notice, and the sale cannot happen until at least 35 days after notice.
Do I still pay my first mortgage if I take a second mortgage?
Yes. You must keep paying the first mortgage as well as the new loan. A second charge also ranks behind an earlier registered first charge.
How much can I borrow against my home?
You can usually borrow up to 80% of your home's value, minus what you still owe. The amount you can actually get depends on the lender and your situation, so ask each lender how it would work out your limit.
Sources
- Ontario.ca – Power of sale assignments (policy) — ontario.ca
- Court of Appeal for Ontario – 2544176 Ontario Inc. v. 2394762 Ontario Inc., 2022 ONCA 529 — ontariocourts.ca
- Court of Appeal for Ontario – Sheth v. Randhawa, 2022 ONCA 89 — ontariocourts.ca
- CanLII – Land Titles Act, R.S.O. 1990, c. L.5 — canlii.org
- Ontario.ca – Postponement of Charge form — files.ontario.ca
- Financial Consumer Agency of Canada – Borrowing against home equity — canada.ca
- Justice Laws – Interest Act, s. 8 — Justice Laws (federal)
- Justice Laws – Criminal Code, s. 347 — Justice Laws (federal)
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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