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.
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: