Second Mortgages in Toronto and the GTA

How a second mortgage works

A second mortgage is a separate loan registered on title behind your first mortgage. Your first lender keeps its rate, term and payment, and the second lender advances a lump sum based on the equity that remains. Because the second lender is paid after the first if a property is ever sold under power of sale, it takes more risk, which is why pricing is higher than a bank first mortgage.

In the GTA, second mortgages are most often arranged through private lenders and mortgage investment corporations, though some credit unions and B lenders also offer them. The process starts with a conversation, then a property appraisal, a written commitment, independent legal advice, and funding through your lawyer's trust account.

Combined loan to value explained

Combined loan to value, or CLTV, is the total of every mortgage on the property divided by its appraised value. Lenders cap the combined figure, not just the second mortgage. On strong GTA properties, private lenders typically go up to 85% CLTV, and lower for rural, unique or condo properties in some buildings.

Example: a Scarborough detached home appraised at $1,100,000 with a $560,000 first mortgage. At 80% CLTV the total allowed is $880,000, so the second mortgage could be up to about $320,000 before fees, subject to lender approval.

What a second mortgage costs

Costs include interest, which is usually interest only, a lender fee, a broker fee, your legal fees and an appraisal. Interest is higher than bank rates and depends on equity, property type, location, credit and exit. Many borrowers choose to have fees deducted from the advance so nothing is paid out of pocket.

Every fee is disclosed in writing on the commitment and the Ontario cost of borrowing disclosure before you sign. Ask us for a side by side comparison of at least two lender options.

Second mortgages with bad credit

Private second mortgage lenders focus on equity, the property and your exit plan. Low credit scores, collections, a consumer proposal, a discharged bankruptcy or missed payments do not automatically disqualify you. Strong equity and a realistic plan to refinance or sell matter more than the score itself.

Second mortgage vs HELOC

A home equity line of credit from a bank usually has a lower rate and revolving access, but requires good credit, provable income and the federal stress test, and the combined limit is capped at 80% with the revolving portion at 65%. A private second mortgage is a lump sum, costs more, and is approved mainly on equity, making it the fit when a HELOC is declined or too slow.

• HELOC: lower cost, needs strong credit and income, up to 80% combined
• Private second: higher cost, flexible approval, up to 85% combined on strong properties
• HELOC: revolving and open ended
• Private second: fixed term of 6 to 24 months with a planned exit

Second mortgage vs refinance

Refinancing replaces your first mortgage with a larger one. It can make sense when your current rate is high or your term is ending. But breaking a low fixed rate mid term can trigger a large interest rate differential penalty. A second mortgage leaves the first untouched, which is often cheaper overall for short term needs. We calculate both so you can compare the real numbers.

Debt consolidation with a second mortgage

Rolling credit cards, lines of credit, car loans and tax debt into one second mortgage can replace several high payments with a single interest only payment, freeing cash flow while you rebuild credit. The plan works best when the old accounts are paid directly by the lawyer at closing and a refinance to a lower cost lender is mapped out for the end of the term.

Using a second mortgage to stop power of sale

When a lender has issued a notice of sale under the Ontario Mortgages Act, there is a redemption period during which the arrears and costs can be paid. A private second mortgage can fund that payment quickly if there is enough equity. Speed matters, so call as soon as a notice arrives. We prioritize these files day and night.

Planning your exit

Every second mortgage needs a clear exit: refinancing into a bank or B lender after credit repair or income seasoning, selling the property, paying out from expected funds, or renewing on a lower balance. We build the exit plan before the loan, so the lender is comfortable and you know exactly how the term ends.