How does a second mortgage work in Toronto?

How does a second mortgage work in Toronto?

How does a second mortgage work in Toronto?

A second mortgage is a type of loan that allows homeowners to benefit from the value of your Toronto home. You can get this loan even before you pay off the first mortgage. However, many people have misconceptions about who can get a second mortgage and how they work.

 how does a second mortgage work in Toronto? 

Well, here are 4 things you may not know about second mortgages.


  • You can borrow up to a maximum of 85% of the equity you have accumulated in your home. 


For example, if you own a home valued at $400,000, and you have an outstanding balance of $200,000 on your first mortgage, you may be able to access up to $140,000 of the equity in your home as a second mortgage. 

$400,000 total home value × 85% maximum second mortgage value = $340,000 

200,000 outstanding balance on the first mortgage 

$140,000 available as a second mortgage


  • Lump sum payouts may be available. 


The most common type of second mortgage is a closed mortgage, in which the borrower typically receives one payment for the total loan amount. Using the example above, you would receive a one-time loan payout in the amount of $140,000, less applicable taxes and administrative fees.

Note that there are various types of second mortgages, including a revolving home equity line of credit (HELOC). This is a secured form of credit that allows you to have continuous access to the equity in your home as you pay down the principle, so you can borrow, pay down your balance, and then borrow again. Be sure to speak with a trusted mortgage broker to learn more about which type of second mortgage is right for you.


  • The money can be used for anything. 


Your first mortgage had very specific rules regarding what you could do with the funds you borrowed – the lender even had to approve the specific home before they would loan you the money to pay for it. However, second mortgages can be used for literally anything, including but not limited to covering costs for emergencies, paying for a wedding, investing in a business, renovating your home, or consolidating your debts. 


  • You may be able to get a second mortgage even if you have bad credit. 


With the right Toronto mortgage broker, you can get a second mortgage to help you pay off your past due bills and get your finances back in order. This may be through a lender with unique qualification rules, or it may be through a private lender or investor group which is not associated with a bank and therefore may have more flexible eligibility requirements.  

Second mortgages are generally completely separate from your first mortgage, with a different mortgage lender and a higher rate of interest. Expert knowledge of how second mortgages work will be required to navigate the rules and search for the best interest rates. Contact me today to find the second mortgage that is right for you. 


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