Second mortgage
Tap into your home equity to support other ventures
A second mortgage is a type of subordinate mortgage, typically with a higher interest rate, made while an original mortgage is still in effect. A second mortgage receives payments only when the first mortgage has been paid off.
Important considerations
Second mortgage costs
Although most second mortgage lenders state that they don’t charge closing costs, the borrower still must pay closing costs in some way as the cost is included in the total price of taking out a second loan on a home.
Borrowing limits
Second mortgage loans use your home (presumably a significant asset) as collateral, so the more equity you have in a home, the better. Most lenders will allow you to borrow at least up to 80% of your home’s value, and some lenders will let you borrow more
Approval time
You will need to apply for an appraisal of your home will need to be done, and it usually takes the lender’s underwriter a few weeks to review your application. It could be four weeks, or it could be longer, depending on your circumstances
Frequently Asked Questions
What are the costs associated with a second mortgage?
Just like the purchase mortgage, there are costs associated with taking out a second mortgage. These costs include appraisal fees, costs to run a credit check, and origination fees.
How do I qualify for a second mortgage?
To qualify for a second mortgage, you will need to meet a few financial requirements. You will need at least a credit score of 620, a debt-to-income ratio of 43%, and you will need to have a decent amount of equity in your first home. Because you are using the equity in your home for the second mortgage, you will need to have enough to not only take out your second loan, but be able to keep approximately 20% of your home’s equity in the first mortgage
What will lenders consider when reviewing my application for a second mortgage?
When considering a borrower’s application for a home equity loan, the lender will check whether the property has significant equity in the first mortgage, a high credit score, stable employment history, and a low debt-to-income ratio.
Why a second mortgage?
Getting a second mortgage makes sense if:
You need to finance home improvements/renovations
You need cash to support education or business ventures
You are looking for a way to consolidate other debts
When should I get a second mortgage?
Second mortgages can be a smart financial move, but they don’t come without risk.
Benefits of second mortgages:
Access to untapped equity in your home for cash
Finance big ticket items like college or major renovations
Interest rates on second mortgages are lower than on private loans or credit cards
Risks to consider:
If you can’t pay a second mortgage back, you risk losing your home.
It costs money to close on a second mortgage
If your home doesn’t appraise high enough and you don’t have enough equity in your home, you may not qualify for a second mortgage loan
Why work with a mortgage broker to get a second mortgage?
Market knowledge
A broker understands the ins and outs of the local market, interest rates and current mortgage trends, meaning they will also know whether a second mortgage is a good option for you.
Peace of mind
There is a lot to consider when applying for a second mortgage. Working with someone you can trust to help you navigate the process lets you rest assured you are making the best possible decision for the short- and long-term.
Understand all your options
A mortgage broker can listen to your needs and help you properly assess all available options to achieve your homeownership goals.
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Consolidate debt or save money.
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Private Lending
Consider options outside of traditional loans.
If you’re unable to secure a mortgage through the usual means, a private lender may be an option.