A second mortgage, is an additional loan while still having your first mortgage. There are less requirements for second mortgages when compared to a refinance or home equity line of credit, but the rate is usually higher because there is an increased risk.

Similar to refinancing and HELOCs though, second mortgage leverages your home equity. If a homeowner defaults, the first mortgage will receive priority until it's completely paid back. Once the first mortgage is fully paid, the second mortgage will then receive the remaining amount, if any.

Why get a second mortgage?

Second mortgages can be used as a short-term financing solution, it’s an alternative when you do not qualify for a home equity LOC or refinance. Some examples include:

• Investments.

• Debt consolidation (credit cards, car loans, etc).

• To avoid private insurance fees (e.g. CMHC) if you don't have a 20% down-payment for the first mortgage.

• Home repairs or renovations.

Qualifications

• Equity: The more equity in the home the greater the chance of approval.

• Proof of regular payments for utilities, phone bills, insurance, etc.

• Credit: the higher the score the lower the rates: 550 to 700

Interest rates can be fixed or variable, and payments are similar to a cash-out refinance: One lump sum deposited into your bank account.

How to get a second mortgage?

Mortgage agents are a good source for lenders. Typically, most banks don't offer second mortgages because there is an additional risk. Agents on the other hand have access to many different lenders that offer second mortgages.

Costs of a second mortgage:

• Home appraisal fees.

• Title search and insurance.

• Legal fees.