A second mortgage is an additional loan taken out on a property that is already mortgaged. For the lender, this is more risky than the first mortgage, because they are in second position on your property’s title. If the homeowner defaulted on their first mortgage and the property was taken into foreclosure, the lender in first position would always be paid out first, whereas the lender in second position runs a higher risk of not being paid out in full or has the option of paying out the first mortgage to take over the property and recover their money To compensate for this additional risk, mortgage rates for second mortgages are always higher than for first mortgages.
Second mortgages have become more prominent since CMHC changed the guidelines on Home Equity Lines of Credit (HELOC). At one time you could add a HELOC all the way up to 95% of the value of your home, now CMHC has cut that number back all the way to 65%. Second Mortgages are now a way for people to take equity out of their homes when they need it, private lenders work outside of CMHC guidelines and therefore are allowed to set their limits according to the risk involved in giving you more money against the value of your home.
Traditionally second mortgages would only go to 75% the value of your home including the existing first mortgage. Now with the new government rules many of the private second mortgages are taking on more risk with clients whose credit is good but who can no longer get assistance from their banks. This means in major centers you will see mortgage companies offering second mortgages up to 85% of the value of the property. The rates will be in the double digits but sometimes situations will justify the costs.
Second Mortgages have a lot of different uses; some will use them to renovate and improve the value of the property and then refinance them back to a regular mortgage once the value has increased sufficiently. Second mortgage lenders will lend for the purpose of paying off revenue Canada this is important as the big banks require Revenue Canada paid in full before they can lend you any more money. Second mortgages are sometimes used to fund schooling for children or used to fund retirement properties while they wait to sell in the future. There are a multitude of uses for the money but it must be realized that they are not inexpensive due to the risk to the lender. Talk to a mortgage broker about the options and your financial needs when considering a second mortgage and we will guide you to lender and terms that you need for your situation.