Second, or third mortgage
Getting a second mortgage
A second mortgage is a second loan that you take on your home. You can borrow up to 80% of the appraised value of your home, minus the balance on your first mortgage.
The loan is secured with your home equity. While you pay off your second mortgage, you also need continue to pay off your first mortgage. If you can’t make your payments and your loan goes into default, you may lose your home. Your home will be sold to pay off both your first and second mortgage. Your first mortgage lender would be paid first.
Your lender may deposit all the money in your bank account all at once.
Example: Getting a second mortgage
Suppose you need money to pay for your child’s post-secondary education. Consider how much you may be able to borrow with a second mortgage.
Assume the following:
- your home is worth $250,000, according to an appraisal
- you owe $150,000 on your mortgage
| Appraised value of your home | $250,000 |
|---|---|
| Maximum loan allowed | x 80% |
| Loan amount based on appraised value | = $200,000 |
| Less balance you owe on your mortgage | – $150,000 |
| Second mortgage credit limit | $50,000 |
Interest rates and fees on second mortgages
Interest rates on second mortgages are usually higher than on first mortgages because they are riskier for lenders.
You may have to pay administrative fees such as:
- an appraisal fees
- title search fees
- title insurance fees
- legal fees
*credit: information provided by Canada.ca