What is a Second Mortgage?
- If you have a property and you borrow the first time against this property, it is a first mortgage. If you decide to borrow more against the same property, it is a second mortgage.
- The second mortgage will stand behind the first mortgage. That is, if you sell the property, you will repay the first mortgage first and any remaining proceed will then be used to pay the second mortgage.
- Second mortgage is considered a higher risk than a first mortgage since the lender who holds the first mortgage has the first right against the property. For this reason interest rate on second mortgage is usually higher than interest rate on first mortgage.
- Second mortgage is often used to consolidate multiple debts into a single debt with one monthly payment. Or second mortgage may be used to pay for that vacation or renovation that you have always wanted.
- Many businessmen will use a second mortgage to finance their start up capital or to pay for the company equipments, machinery or vehicles.
- Even people with poor credit or bad credit can obtain a second mortgage provided that there is sufficient equity in the property. However interest rate may be higher due to the poor credit score.
- Again there are numerous lenders ready to provide you with a second mortgage. Please shop around for the best rate and best deal.
- Starting a new business? Many have used second mortgages as a means to raise start-up capital for a new business venture.
- Paying off higher interest credit cards and loans may have you in dire straights and you’re searching for bad credit second mortgage refinancing.
- What ever your reasons, you can investigate the possibilities of using this type of financial tool by contacting a mortgage broker from the Mortgage Department. You may be pleasantly surprised at the options available.
Second Mortgage program provides borrowers with the additional flexibility of allowing a Second Mortgage to be registered against their property up to 95% combined LTV on a purchase and 80% combined LTV on a refinance.
Acceptable Loan Purpose & Applicable Loan-to-Value Limits are:
- Purchase transactions: 95% Combined Loan-To-Value (CLTV) based on 1st & 2nd mortgages
- Refinance transactions: 80% Combined Loan-To-Value (CLTV) based on 1st & 2nd mortgages
- The 1st mortgage must be insured under any of the following scenarios:
- Purchase/Purchase Plus applications
- Combined Loan to Value (CLTV) is > 90%
- If the application type is a refinance, the 1st mortgage does not have to be insured, however, the following conditions will apply:
- 1st mortgage must be held by an approved lender
- 1st mortgage must be on repayment for a minimum of 1 year
- Under all scenarios, the 1st mortgage must meet the following conditions:
- Current at time of 2nd mortgage application with stable repayment history
- 2nd mortgage agreement must contain cross-default clause
- In the event of a re-advanceable 1st mortgage, no amount may be re-advanced until after the 2nd mortgage is paid out
- If CLTV > 90%, the 1st mortgage must be held by the same lender
- Maximum 4 units where at least 1 unit must be owner occupied
- Existing resale properties
- Readily marketable residential dwellings, located in markets with demonstrated ongoing re-sale demand
- Estimated remaining economic life of the property should be a minimum of 25 years.
Maximum Property Value:
- LTV > 80%: Less than $1,000,000
Equity Removal Limits:
- For CLTV ≤ 80%, equity removal is limited to $200,000
- If the loan purpose is to consolidate the 1st and 2nd mortgages, the maximum CLTV ratios will apply
Terms / Qualifying Interest Rate:
- Fixed, standard variable, capped variable and adjustable rate mortgages are permitted
- For loans with fixed rate terms greater than or equal to 5 years, the contract rate is used
- For loans with fixed or variable rate terms less than 5 years, the qualifying interest rate is the greater of the contract rate or 5-yr benchmark rate
- LTV > 80%: Up to 25 years
- LTV < 80%: Up to 40 years
The premium payable will be the lesser of the Premium as a % of the combined 1st and 2nd mortgage amounts, or the top-up premium as a % of the 2nd mortgage amount only based on the rates below:
|LTV Ratio||Recommended Credit Scores||Combined 1st & 2nd Loan Amounts||2nd Mortgage Amount|
|Up to 65%||620||0.60%||0.60%|
|65.01% – 75%||620||0.75%||2.60%|
|75.01% – 80%||620||1.25%||3.15%|
|80.01% – 85%||620||1.80%||4.00%|
|85.01% – 90%||660||2.40%||4.90%|
|90.01% – 95%||700||3.15%||4.90%|
LTV < 80% – A .25% premium surcharge will be applied for every 5 years of amortization beyond the traditional 25-year mortgage amortization period
Note: The insurance premium is non-refundable, paid at the time of closing and may be added onto the mortgage
- The mortgage payment to be used on the 1st mortgage for qualification purposes will be the greater of the actual P+I payment or the calculated P+I payment based on the Bank of Canada qualifying rate
- Existing requirements related to income, down payment and credit worthiness apply
Documentation / Information Requirements:
- Standard documentation requirements apply
- May request that the lender provide a copy of the required documentation on a case-by-case basis
- Our mortgage default insurance is portable, so home buyers can take advantage of a lender’s portability plan. For further details, refer to Portability Feature Product Overview.
Assumptions / Assignments:
- Mortgage is assumable subject to meeting lender guidelines.
- Business For Self (Alt-A) Program
- Cashout Refinance Program
- Homebuyer 95 Program
- Purchase Plus Improvements Program
- Vacation/Secondary Homes Program (Type A Properties)
- Cashback Equity Program
- New to Canada Program
- Progress Advance Program
- Vacation/Secondary Homes Program (Type B Properties)
We are here to help you secure the best possible second mortgage loan. As a mortgage broker, it is my job to get you the loan on the best terms and for lowest payments possible. Contact me today or call at 416-402-7264 for a free consultation!