Expert Mortgage Brokers | Toronto second mortgages
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Toronto second mortgages

Toronto Second Mortgages 

A second mortgage is a loan or charge secured against a property which takes second position behind a first mortgage holder. The second mortgage holder could be the same as the first mortgage holder, but typically, this is not the case.

Properties can have multiple loans or liens against it. A loan or charge registered with the province first is called the first mortgage against the property. The loan registered second is called the second mortgage or charge. A property can have a third or even fourth mortgage, but these kinds of mortgages are quite rare.

Toronto second mortgages are subordinate mortgages because, if the home owner fails to pay his or her mortgage and the loan goes into default, the first mortgage holder gets paid first before the second mortgage holder. Thus, second mortgages are much more risky for lenders. Consequently, they come at a much higher interest rate than first mortgages.

A second mortgage is essentially a home equity loan. Generally, a ‘mortgage’ is the legal term to describe the legal lien on the property, rather than the debt itself.

The length of term for a Toronto second mortgage can vary. Terms can be as long as 30 years or as short as one year. The amortization can be 5, 10, 15 years or more. It could also be an interest only loan as well which provides for the however repayment may be required in as little as 1 year depending on the loan structure.

The benefits of a Second Mortgage

Oftentimes, a second mortgage can be helpful to help avoid Power of Sale. If, for a number of reasons a home owner defaults on their mortgage a second mortgage can be helpful to catch up arrears and get the home owner back on their feet. Here are some other reasons:

  • To consolidate high interest debts such as credit cards
  • To pay for unexpected expenses and bills
  • To release equity to do home renovations
  • To pay out a bankruptcy or Consumer Proposal
  • To help repair credit reports
  • To invest in stocks mutual funds or business investments
  • To pay for secondary or higher education or children’s education such as college or university

Advantages of a second mortgage in Toronto

  • It is always better to try to secure a new second mortgage if you want to increase your debt because the rates are so much lower than a second mortgage or unsecured loan. However, if you currently hold a favorably low rate first mortgage and do not want to discharge due to penalties, fees, etc. a second mortggae might be a better option. (Ask your Expert Mortgage Broker to do the calculations for you.)
  • Second mortgages can also be arranged with greater ease due to the amount of lenders available both institutionally and privately. Oftentimes, they are only interested in the value of the property, not the credit history or employment income.
  • Most lenders of second mortgages are prepared to allow interest only payments and 1 year terms
  • Up to 90% of Home Value can be used depending on the lender to arrange a 2nd mortgage