Second Mortgages Canada – How Do They Work?

Canadians may be aware of second mortgage, but this doesn’t mean that everyone knows how to go about it. Second mortgage is basically a secured loan that can be take out on the property that you have just bought even before you manage to pay it off completely. This is possible because you can put several loans or multiple liens on a property. Take note that the first loan that you took is called the first mortgage and the second lien or loan is referred to as the second mortgage. There are instances when you can even take out a third or fourth mortgage too.

How Does It Work?

When you default on your second mortgage, the first mortgage is usually paid off first. This is why mortgage lenders are a bit wary of those who are applying for second mortgages. They put higher interest rates which can be affected by your credit rating, your ability to pay off your second mortgage, and the value of your property too.

The second mortgage can have different lengths from one year up to 10 years depending on your needs, but for those who do apply for one, they usually opt for a shorter length to pay off their debts. Second mortgages are deemed risky by those who are in the real estate because they can lead to foreclosure if you default. The lender who holds your second mortgage can pay the first lender then foreclose the home. With that said, it is important that you talk to a registered mortgage lender to help you discuss the ins and outs of second mortgages.

Are There Any Benefits to Second Mortgage?

Even though second mortgage can be risky, it does come with several benefits. Here are a few that are worth mentioning:

  • Second mortgage lenders are available. Although this type of mortgage is risky, there are private as well as institutions that are willing to provide you with the loan since your home is going to be the collateral.
    It is possible to borrow up to 90% of the value of your property on your second mortgage depending on how marketable it is.
  • This is a good option if you want to get emergency funds with the equity in your home. The extra cash can be used for home improvements, your child’s school fees, or even putting a down payment on a new property.

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