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What Is a Second Mortgage?

Nim Chauhan

26 Jul 2019 Second Mortgages

What Is A Second Mortgage?


What Is a Second Mortgage?

A second mortgage is exactly that…a mortgage that you can take out on your home, sitting on top of an already existing 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 major purchases.


Interest Rates & Qualifying for a Second Mortgage

Second mortgages can be a meaningful source of capital for a borrower with home equity to draw from. However, they do come with drawbacks – a second mortgage will always have a higher interest rate than a first mortgage, because the lender must sit behind the first mortgage provider for repayment. If the homeowner defaults for any unforeseen reason, the first mortgage lender will have first rights to recover their funds. This leaves the second mortgage lender in a less secure position, in order to account for this higher risk, the second mortgage lender will demand a higher interest rate.

Interest rates for second mortgages will depend on many variables, including:

  • Your credit score
  • Location of your property
  • The interest rate that you are paying on your first mortgage
  • Your income
  • Assets and liabilities
  • The value of your home

Both banks and private lenders offer second mortgage services, with differing qualification standards. Banks will require a higher credit score and minimum equity and they will typically have a lower maximum loan to value that they will lend to, whereas private lenders will have a higher interest rate, but credit score and equity qualifications are lower. The below chart is an example of some common second mortgage interest rates:

Lender

Approximate Interest Rate

Approximate Credit Score Required

Approximate Maximum Loan to Value

Income Verification

Private Lender

3.99 - 12%

No Minimum

90%

Not Required

Canadian Bank

Prime – 4.5%

Greater Than 620

65 - 75%

2 Years of Provable Income:
(eg. Notice of Assessments, Pay Stubs)


Why Get a Second Mortgage?

There are many reasons why you might need a second mortgage - maybe you want to buy an investment property? Refinance your other debts to a lower interest rate? A second mortgage borrows against the equity tied up in your home, allowing you to use the funds for many other purposes. Generally, it’s best to use the funds to improve your net worth or home value as you will eventually need to repay the loan.

Some common uses for second mortgage funds include:

  • Home improvements
  • Debt consolidation
  • Education
  • Medical emergencies
  • Investments, including rental properties


Why Use Rateco For Your Second Mortgage?

One of the challenges with private lenders is that there is no “marketplace of rates”; it’s difficult for you to find competitive offers, and traditional brokers typically have a very limited list of private lenders to work with. This lack of transparency means private lenders may not put their best foot forward on pricing for you. That's where Rateco comes in.

Rateco’s live auction drives private lenders to bid against one another for your business. Interest rates, fees, repayment schedules – our lenders compete, creating better, and more, options for you to consider.  

At Rateco, we want to help people get into the right mortgage product at the best price. 


Apply for your second mortgage online today!