What Is A Second Mortgage And How Does It Work?

Author: Anchor Mortgages Canada LTD. | | Categories: Best Mortgage Brokers , Commercial Equipment Financing , Commercial Mortgages

Blog by Anchor Mortgages Canada LTD.


If you are a homeowner, you might have heard of the term "second mortgage." But what exactly is a second mortgage, and how does it work? In this blog, we will explain everything you need to know about second mortgages and whether they are a good option for your financial situation.

A second mortgage is a loan that you can take on your home if you already have a primary mortgage. This additional loan is provided by a different mortgage lender and is secured against the equity you have in your home. When you take out a second mortgage, you will be required to pay back the loan amount along with the interest, just like your primary mortgage.


So, how does a second mortgage work?

The amount of money you can borrow for your second mortgage will depend on the equity you have in your home. For instance, if your home is valued at $400,000 and the balance of your first mortgage is $100,000, the total of a first and second mortgage can be as much as 80% of your home’s value, which means your second mortgage could be as much as $220,000.

But how does a second mortgage work when it comes to qualifying?

Second mortgage lenders tend to care more about the amount of equity in your home than your income or credit score. So, if you’re interested in a second mortgage, it is essential to understand how much equity you have in your home. To qualify for a second mortgage, you will need to have a dependable source of income, and the lender will need to secure the investment in your property in the event that you're unable to keep up with mortgage payments.

One of the reasons second mortgages are riskier for lenders is that they take on more risk than the provider of the primary mortgage because they would be in second position on the property’s title. Due to this additional risk, second mortgage rates are usually higher than the rates of the primary mortgage. When comparing a second mortgage vs. HELOC, for example, second mortgage rates are almost always higher.

Can you get a second mortgage with bad credit?

Yes, many second mortgage lenders will provide second mortgages to people with bad credit, including those with a previous bankruptcy or proposal. However, taking a second mortgage with bad credit means you will pay high interest on the loan (often 10% or even higher, depending on your credit score). Mortgage brokers have access to dozens of private lenders, many of whom will provide a loan, even if your credit rating is in the 500s, so long as your second mortgage LTV stays below 80%. It is much easier with bad credit to get a second mortgage vs getting a HELOC with poor credit.

Many Canadians get a second mortgage for reasons such as consolidating high-interest debts, paying for medical or unexpected emergencies, or paying for home renovations.

Now that you know what a second mortgage is and how it works, let's take a closer look at the advantages and disadvantages of having a second mortgage.

Advantages of a second mortgage:

  • You don’t have to discharge your current low rate primary mortgage and suffer penalties and fees.

  • There are many providers, both institutional (banks and credit unions) and private (mortgage lenders/providers), making it easier to arrange, especially when you compare a second mortgage vs a HELOC.

  • Most second mortgages are interest-only payments and one-year terms.

  • Up to 80% of your appraised home value can be used to arrange a second mortgage, minus the amount left to pay on the primary mortgage.


A second mortgage can be a useful tool for homeowners who need to access the equity in their homes. However, it is essential to understand the advantages of a second mortgage before making any decisions. Therefore, it is important to speak with an experienced mortgage broker who can help you determine if a second mortgage or reverse mortgage is right for you.

At Anchor Mortgages Canada LTD., our experienced mortgage brokers will find the best mortgage solution that meets your needs. 

Contact us today to learn more! To learn more about what we do, please click here. To contact us, please click here or call us at (778) 880-2345