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A second mortgage is an additional loan registered against a property that already has a first mortgage, sitting behind it in priority so the second-mortgage lender is repaid only after the first mortgage is satisfied.
A second mortgage lets a homeowner access equity without disturbing the existing first mortgage — useful when that first mortgage carries a rate worth keeping, or when breaking it would trigger a prepayment penalty. Because the second lender's claim on the property ranks behind the first, second mortgages are considered higher risk and typically carry a higher interest rate to reflect that subordinate position.
Second mortgages are frequently arranged through private lenders or Mortgage Investment Corporations, particularly when a borrower's combined loan-to-value or qualifying profile doesn't fit within an A or B lender's single mortgage. Unlike a HELOC, a second mortgage is usually a fixed lump-sum term loan rather than a revolving line of credit.
Registered in second position: on default or sale of the property, the first mortgage lender is paid out in full before the second-mortgage lender sees any proceeds.
Often arranged privately: private lenders and Mortgage Investment Corporations are common sources for second mortgages when a borrower doesn't fit A or B lender criteria.
Avoids disturbing the first mortgage: borrowers use second mortgages to raise funds without paying a prepayment penalty on an existing, often lower-rate, first mortgage.
Discharging the first mortgage gets more complex: paying off or refinancing the first mortgage while a second is registered usually requires a payout or subordination arrangement with the second lender.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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