If you need a loan to cover a big expense, you may be able to tap into your home’s equity for the money.
One way to borrow against your home’s equity is through a second mortgage in Canada.
Key Points
1. A second mortgage lets you borrow against your home’s equity.
2. A second mortgage comes in two common forms: a home equity loan and a home equity line of credit (HELOC).
3. Your home serves as collateral, which may help you qualify for the loan more easily and take advantage of better rates.
4. You can typically borrow up to 80% of your home’s appraised value (first and second mortgage combined).
What Is The Meaning Of A Second Mortgage?
The most common way to access your home equity is through a second mortgage. Equity is an asset that your home accumulates as you pay down your mortgage. It is calculated by subtracting your remaining mortgage balance from the value of your property. Once you have at least 20% equity, you will be able to access a variety of credit products that are secured against it, including second mortgages in Canada.
The term “second mortgage” is used because the loan is second in priority in case of default. This means that if a borrower defaults, the first mortgage will be paid off before the second mortgage if the property is sold to pay off the debt.
When choosing to access your home equity via a second mortgage, you will have two products to choose from: a home equity loan or a home equity line of credit (HELOC).
How Does A Second Mortgage Work In Canada?
A second mortgage works by letting you borrow against the equity you have built in your home while keeping your original mortgage in place. Your home secures both loans, and the “second” mortgage sits behind your first in priority. If you ever default and the home is sold, your first mortgage is paid off before the second.
You can usually borrow up to 80% of your home’s value in total (first and second mortgage combined), and you repay the second mortgage on top of your existing mortgage payment. Because the lender takes on more risk sitting in second position, second mortgage rates are higher than your first mortgage rate, though they are still usually lower than most unsecured credit.
Can You Get A Second Mortgage With Bad Credit?
Yes. If your credit is not strong enough for a bank, alternative lenders will still consider you, because they focus on your home equity rather than your credit score. As long as you have at least 20% equity in your home, you can often qualify for a second mortgage with bad credit, though you will pay higher interest rates and fees to offset the lender’s added risk.
Find The Best Mortgage For Your Needs
| Amount | Rate | Availability | Products | |
 Loans Canada | Varies | Varies | All of Canada | - First mortgage - Refinancing - Renewal - Lender switch - Home equity loans |
 Alpine Credits | $10,000+ | Based on equity | All of Canada except Quebec | - Home equity loans |
 Mortgage Maestro | $10,000+ | 5.19%+ | All of Canada except Quebec | - First mortgage - Refinancing - Renewal - Line of credit (HELOC) - Reverse mortgage |
 Neo Mortage™ | Varies | 5.54%+ | All of Canada except Quebec | - First mortgage - Refinancing - Renewal |
 nesto | $100,000+ | 5.34%+ | All of Canada | - First mortgage - Refinancing - Renewal |
 Homewise | Varies | Varies | BC, AB, MB ON | - First mortgage - Refinancing - Renewal - Lender switch |
Where Can You Get A Second Mortgage In Canada?
Second mortgages in Canada are available from two main types of lenders. Traditional lenders, like banks and credit unions, offer the lowest rates but have strict requirements, including a good credit score, strong income, and a low debt-service ratio. Private mortgage lenders focus more on your home equity than on your credit, so they are more flexible if your finances are less than perfect.
Second Mortgages With Banks: The Big 5
If you have strong credit and income, one of Canada’s big five banks may offer the best rates on a second mortgage, usually through a home equity loan or a home equity line of credit (HELOC). Here is what each of the big banks offers.
| Bank | Home Equity Product | Type |
|---|---|---|
| RBC | RBC Homeline Plan | Combined mortgage and HELOC |
| TD | TD Home Equity FlexLine | HELOC |
| Scotiabank | Scotia Total Equity Plan (STEP) | HELOC and borrowing program |
| BMO | BMO Homeowner ReadiLine | HELOC |
| CIBC | CIBC Home Power Plan | Home equity loan and HELOC |
Second Mortgage Types: Home Equity Loan And HELOC
| Home Equity Loan | HELOC | |
|---|---|---|
| Fund availability | One lump sum | Withdrawals on an as-needed basis |
| Maximum you can borrow | Up to 80% of property value, minus your remaining mortgage balance | Up to 65% of property value, minus your remaining mortgage balance |
| Interest rate | Fixed | Usually Prime plus 0.5% |
| Repayment schedule | Regular installment payments over a fixed term | Interest-only payments during the draw period; principal and interest in equal installments (up to 20 years) after |
Home Equity Loan
A home equity loan is a type of loan that is secured against your home. Like other loan types, a home equity loan provides you with a lump sum of money that you can use for a variety of purposes. The loan is repaid through installments over a set term, typically anywhere from 5 to 15 years, with interest charged on the full loan amount.
Pros Of A Home Equity Loan
- Fixed payments. Equally divided payments are easier to calculate and budget for.
- Fixed rates. Many lenders charge a fixed interest rate that will not change during your term, sometimes lower than variable rates.
- Easier qualifications. Compared to unsecured personal loans, home equity loans are generally easier to qualify for because they are secured against your home.
Cons Of A Home Equity Loan
- Higher interest rate. The rate will be higher than your first mortgage, though typically lower than other unsecured loans.
- Collateral at risk. A home equity loan uses your house as collateral, which could put your home at risk if you miss too many payments.
Home Equity Line Of Credit (HELOC)
A home equity line of credit (HELOC) functions more like a credit card, in that you are able to withdraw from a revolving credit limit. You can choose to make minimum monthly payments or pay off your balance to regain access to your full limit.
Typically, you will be able to borrow up to 65% of the value of your house with a HELOC, which is the limit set by the Canadian government. Interest rates are usually variable and fluctuate based on an index. This will affect your monthly payments and make them less predictable than the payments associated with a home equity loan.
Pros Of A HELOC
- Interest only on what you use. Interest is charged only on the amount you borrow, not your entire limit. Once you pay back what you withdrew, no more interest is charged.
- Quick access to funds. A HELOC is a source of funds you can access at any time, rather than applying for a loan each time an expense comes up.
- Flexible payments. You can make multiple, partial, or minimum monthly payments until the draw period ends (around 10 years), after which you pay off the principal and interest with regular payments.
Cons Of A HELOC
- More interest. You might pay more interest overall if you do not consistently make full payments.
- Variable rate. Variable rates apply, which can be higher than fixed rates if Canada’s prime rate rises during your term.
- Fees. Many lenders charge a yearly fee to keep the HELOC open, on top of any [HELOC fees](https://loanscanada.ca/mortgage/understanding-heloc-fees/) at setup.
- Collateral. If you fail to pay your HELOC, you could lose your home, since it is used as collateral.
What About A Reverse Mortgage?
If you are 55 or older, a reverse mortgage is another way to tap your home equity. Instead of making monthly payments, you receive tax-free cash and the loan is repaid when you sell or move. It can suit retirees who are house-rich but cash-poor, though it carries higher rates and reduces the equity you leave behind.
Second Mortgage Rates: Fixed Vs. Variable
The rate you pay on a second mortgage depends partly on which product you choose.
- Fixed rates. A home equity loan usually comes with a fixed rate, so your payment stays the same for the entire term. This makes budgeting easy and protects you if interest rates rise, though you will not benefit if rates fall.
- Variable rates. A HELOC usually has a variable rate, typically the lender’s prime rate plus a margin (often around prime plus 0.5%). Your payment can move up or down as the prime rate changes, which offers flexibility but less predictability.
Either way, second mortgage rates are higher than first mortgage rates, since the lender sits in second position and takes on more risk. Rates from alternative and private lenders are higher still, so compare offers and lock in a rate you can comfortably afford.
What Do You Need To Qualify For A Second Mortgage In Canada?
To qualify for a second mortgage, you generally must meet the following criteria:
- Have at least 20% equity in your home
- Have an acceptable debt-service ratio (no more than 39% Gross Debt Service (GDS) ratio or 44% Total Debt Service (TDS) ratio)
- Have a consistent source of income
How Much Equity Do You Need For A Second Mortgage?
You generally need at least 20% equity in your home to qualify for a second mortgage. Lenders cap your total borrowing at around 80% of your home’s appraised value across both mortgages, so the more equity you have above that cushion, the more you can borrow.
Do You Need Good Credit?
If you are applying with a traditional bank, you will generally need a good credit score. However, if you apply with an alternative lender, they may accept all types of credit scores, including bad ones.
Do I Need To Pass A Stress Test?
Yes, to qualify for a second mortgage with a federally-regulated lender, like a big bank, you will need to pass the mortgage stress test. To pass, you must qualify at the benchmark rate of 5.25% or your contract rate plus 2%, whichever is greater.
That said, if you want to avoid the mortgage stress test, you may consider applying for a second mortgage with an alternative lender or a non-federally regulated credit union. These lenders do not follow the same stringent rules as big banks, so they may not require the stress test.
Documents You May Need To Apply
Because a second mortgage is secured against your home, lenders need to verify both your finances and your property. Having these ready will speed up your application:
Second Mortgage Document Checklist
- Proof of income, such as pay stubs, a notice of assessment, or business records if you are self-employed
- Recent statements for your existing mortgage
- A current property appraisal or the lender’s estimate of your home’s value
- Government-issued photo ID
- Proof of home insurance
- Details of your other debts and monthly obligations
- Your most recent property tax bill
How Much Can You Borrow Through A Second Mortgage?
The amount you can borrow can be calculated using the following equation:
Property value x maximum borrowing amount, minus remaining mortgage amount
Here is an example of how to calculate the amount you can borrow with a second mortgage in Canada.
| Home value | $650,000 |
| Maximum borrowing amount | $520,000 (80% of home value) |
| Mortgage remaining | $300,000 |
| Amount you can borrow | $220,000 ($520,000 minus $300,000) |
When you plug in the above figures, the formula looks like this:
($650,000 x 80%) minus $300,000 = $520,000 minus $300,000 = $220,000
In this example, the most you can borrow through a second mortgage is $220,000.
Fees And Costs Of A Second Mortgage
A second mortgage comes with more than just interest. Before you apply, budget for these common costs:
- Appraisal fee. Pays for a professional to confirm your home’s current value, usually a few hundred dollars.
- Legal fees. A lawyer or notary registers the second mortgage against your title.
- Lender or origination fees. Common with alternative and private lenders, sometimes 1% to 3% of the loan amount.
- Broker fee. If you use a mortgage broker, they may charge a fee, especially on higher-risk deals.
- Title insurance and administrative fees. Smaller charges that can still add up.
- Discharge fee. Charged when you pay off and close the second mortgage.
These costs are usually higher with alternative and private lenders than with a bank, so weigh the total cost, not just the interest rate, when you compare offers.
Is A Second Mortgage A Good Idea?
A second mortgage can be a smart move or a costly mistake, depending on why you need the money and how stable your finances are. It tends to make sense when you are borrowing for something that builds value or saves you money, like home renovations or consolidating high-interest debt, and you can comfortably handle a second monthly payment. It is riskier when you are borrowing for non-essential spending, or you are unsure you can manage both payments, since your home is on the line.
Weighing when tapping into your home equity is a good choice against your budget is the best way to decide. The pros and cons below can help.
Pros And Cons Of Borrowing Against Your Home
Pros
- Large loans. With enough equity, you can access significant money over a long period without selling your home.
- Alternative to refinancing. A second mortgage can save you costs like the closing fees that would apply with a refinance.
- Good interest rates. Applying with a lot of equity and healthy finances can earn you better rates than unsecured credit products.
Cons
- Extra payment. A second mortgage is a new loan, so you make another payment on top of your first mortgage. Handled irresponsibly, this can lead to debt, damaged credit, and even foreclosure if you default.
- Fees. Expect costs like loan origination, appraisal, accounting, and legal fees.
- Reduced equity. Pulling equity out reduces your equity and adds more debt to the pile.
When Does A Second Mortgage Make Sense?
| When To Take Out A Second Mortgage | When Not To Take Out A Second Mortgage |
|---|---|
| To fund major upgrades that increase your property value | To spend on non-essential luxuries that do not build long-term value |
| To consolidate and pay off high-interest credit cards or personal loans at a lower rate | If you are unsure about your ability to manage two monthly payments |
| To use equity as a down payment on a rental or vacation home | If you have not built enough equity |
| To start or expand a business at better rates than unsecured loans | If you cannot qualify for lower interest rates |
| To cover large, essential expenses without tapping retirement savings | If you do not want to risk losing your home in the event of default |
| To preserve your current mortgage rate and terms if they are favourable | When market rates are unfavourable, making the loan expensive |
Final Thoughts
Borrowing from your home equity can be a great option if you are looking to access larger amounts to cover big expenses or to pay down high-interest debt. Just make sure you have considered the potential drawbacks, including putting your home at risk and the extra payments you will need to make.
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.
Second Mortgage FAQs
Generally speaking, you will need at least 20% equity built up to get a home equity loan. You would need to have made a large down payment of at least 20% of the purchase price when you bought your home, or wait until your home appreciated enough to reach 20% equity.
Typically, two scenarios can play out. You will either need to pay off your second mortgage in full before the sale of the house, or you will need to use the proceeds from the sale of your house to pay off the debt.
You can repay your second mortgage early, but be wary of early prepayment penalty fees. Review your loan contract or speak with your lender to find out if these penalty fees will apply, and if so, how much they are.
Yes, many lenders offer flexible options for self-employed Canadians, especially those with lots of equity.
You will typically need proof of income, a property appraisal, mortgage statements, and photo ID.
Common uses of a second mortgage in Canada include debt consolidation, home renovations, business funding, education, or buying investment property.
If you default on your second mortgage, you risk foreclosure, since your home collateralizes both loans.
References
- Financial Consumer Agency of Canada. (2026). Home equity lines of credit (HELOC). Government of Canada. https://www.canada.ca/en/financial-consumer-agency/services/mortgages/home-equity-line-credit.html
- Financial Consumer Agency of Canada. (2026). Using the equity in your home. Government of Canada. https://www.canada.ca/en/financial-consumer-agency/services/mortgages/using-home-equity.html
Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service
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