April 5, 2019 nkad3

What is a Second Mortgage?

Many people often confuse the term “second mortgage” as a mortgage they seek when there are looking to purchase a home the second time around. Others understand the same term as when you refinance your existing mortgage with a new mortgage. Both are incorrect!


A second mortgage refers to the position of the mortgage being in 2nd place, relative to the existing mortgage that is in place prior to it. For example, if you have a mortgage with a lender and place a mortgage behind it (without paying the 1st one off), you are completing a second mortgage. It’s as simple as that.

Now that we understand what a 2nd mortgage is, we can now discuss when and why you might consider getting one. A second mortgage can be taken for a variety of different reasons including the following:

  • Existing mortgage is lock in a term and it would be costly to break it through a refinance
  • Need quick funds
  • Personal circumstances have changed which prevent you from getting an approval through your existing mortgage lender

These are just to name a few…

When it comes to second mortgages, we typically find that it’s important to only consider getting them for a short period of time. Since the mortgage is in 2nd position, the second mortgage lender’s security in the property is inferior to that of the mortgage lender in front. This is also why the second mortgage rate on these types of mortgages are typically higher in order to mitigate these risks. Due to the higher rates, the payments on these types of loans are also higher which may cause a financial strain if it is carried for a longer period of time.

We always advise that we both, look at and discuss the exit strategy in repaying the second mortgage so that it does not ever become an overwhelming burden. If you are interested in getting a second mortgage or would like to learn more about how they work, please feel free to give us a call and we’d be happy to discuss it further – 905.455.5005.

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