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Getting a Second Mortgage in Toronto

Roland Waithe

19 Aug 2020 Second Mortgages

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What Is a Second Mortgage?

A second mortgage is a collateral home loan taken out by a homeowner ahead of completely paying off their first mortgage. A second mortgage allows homeowners to borrow money from the equity in their home without refinancing their current mortgage. Using your home as collateral, you can obtain funds to finance projects, consolidate debts, and finance major purchases.

What’s the Difference Between a Private and Bank Second Mortgage?

Second mortgage borrowers may be declined by Canadian banks due to credit scores, high loan-to-value, lack of income, or various other reasons. In Toronto and across Canada, if borrowers are declined by banks or institutional lenders, private lenders offer alternative opportunities for a second mortgage with greater accessibility. With a private second mortgage, lenders place greater emphasis on the equity and value of a borrower’s home rather than credit scores or incomes.

Private mortgage lenders are typically private companies or individuals willing to provide short-term, interest-only first or second mortgages. Toronto residents requiring second mortgages with credit scores below 600 will likely resort to private lenders to obtain financing. Unlike Canada’s banks, private mortgage lenders are not regulated by the Bank of Canada, which allows them to set their own rates and qualification standards. As a result, borrowers with poor credit scores can receive the financing they require, though often at a higher interest rate.  

Getting a Second Mortgage in Toronto

Borrowers in Toronto and the GTA have the benefit of high home values and a favourable housing market which results in an abundance of lending options. For any collateral loan, such as a second mortgage, lenders prefer dealing with large urban areas and cities, such as Toronto. The high property values and competitive housing market help mitigate the lender’s risk should a borrower default on their second mortgage.

As a result, Toronto borrowers have a distinct advantage in obtaining a second mortgage. Their higher relative home values allow greater flexibility in borrowing capacity and the abundance of lenders working within Toronto creates more competitive interest rates.

Qualifying for a Private Second Mortgage in Toronto

When assessing a second mortgage candidate, Canadian private lenders generally focus on four primary qualification areas:

  • How much equity does the borrower have available – The more equity an applicant has available, the greater amount an applicant can borrow for a second mortgage. Home equity can be calculated by subtracting what is currently owed on your existing mortgage(s) from the current market value of your home. 
  • Does the borrower have a source of income – Private mortgage lenders require less income verification compared to Canadian banks. This is especially helpful for low income or self-employed borrowers. Generally, bank statements are proof enough to show private lenders you have a steady source of income. 
  • What is the borrower’s credit score – Private lenders are less concerned in a borrower’s credit score for qualification purposes, but rather use credit score to help determine a second mortgage’s interest rate. The higher an individual’s credit score, the lower their interest rate will be.
  • What is the value of the property – As private second mortgages rely on the property as collateral should a borrower default on their mortgage, the value of the home is arguably the most critical part in qualifying for a private second mortgage. Generally, a private lender will lend up to 90% of the value of the home, or loan-to-value (LTV).

Applying for a Private Second Mortgage in Toronto

Determining where to apply for your second mortgage first requires you to understand your credit score. This will establish what type of lender you will qualify with.

  • Credit scores of 600 to 900 should first check second mortgage rates and their qualification standards with Canadian banks.
  • Credit scores of 550 to 700 may qualify with banks, though others will find ‘B’ lenders to be their best option in obtaining a second mortgage. Learn more about Canadian ‘B’ lenders here.
  • Credit scores below 600 will likely need to obtain their second mortgage through private lenders.  

Other scenarios where private mortgage lenders may be your best route for a second mortgage include:

  • Purchasing an unconventional property
  • Time-sensitive home purchasing situations
  • You have been previously turned down by banks
  • You have a poor credit rating
  • Self-employed with unverifiable income
  • You are new to Canada
  • You lack a credit history

Should you fit into any of the above scenarios, or have a credit score below 600, applying for a private second mortgage is generally straightforward. You will need the following documents and information to get started on your application:

  • Two forms of personal identification such as a driver’s license and passport
  • Bank statements
  • Your homes approximate value

About Rateco

Rateco provides second mortgages throughout Toronto, the GTA, and Ontario. We’ve partnered with all levels of lenders, from big 5 Canadian banks to private lenders and institutions. This helps ensure we’re able to provide second mortgages to all those in need of financing throughout the Greater Toronto Area.

Rateco’s unique auction format guarantees borrowers get the lowest rate on their second mortgage as lenders are forced to compete on interest rates, fees, and terms to obtain the mortgage.  

Apply For Your Second Mortgage Online Today!