What a second mortgage means in Canada and how it differs from a HELOC or a refinance.
A second mortgage is an additional loan secured against the same property behind an existing first mortgage.
A second mortgage can provide access to equity without fully replacing the first mortgage, but it also adds cost, complexity, and risk because two secured lenders may now be involved.
FCAC says a second mortgage is a second loan that you take on your home. It sits behind the first mortgage in priority, which means the first lender is generally paid first from the property’s value if enforcement occurs.
Borrowers may consider a second mortgage when they want funds but do not want to break a favourable first-mortgage term. The tradeoff is that the second mortgage often carries a higher rate or tighter terms than the first.
A homeowner has a very strong fixed rate on the first mortgage and does not want to trigger a large break penalty. Instead of refinancing the whole loan, the homeowner takes a smaller second mortgage to access additional funds.
A second mortgage is not the same as a HELOC. A HELOC is revolving credit. A second mortgage is usually a separate secured loan.
Borrowers also sometimes assume the smaller size of the second mortgage makes it low-risk. In reality, adding another secured debt can materially increase payment pressure.
Rates, fees, lender appetite, and enforcement consequences vary by lender and by property equity position. Borrowers should compare a second mortgage against a refinance or HELOC with care.