*This post was created in collaboration with Alpine Credit
Whether you’re thinking about getting another property for investment purposes or to finance other properties, such as a vacation home, you may be wondering how many mortgages can you have in Canada.
The idea of holding more than one might sound like more than your finances could handle. However, depending on your finances, you may be able to mortgage multiple properties. The question is, how many mortgages can you have in Canada?
Let’s dig deeper to find out.
How Many Mortgages Can You Have In Canada?
Some lenders might limit the number of mortgages you can have to minimize their risks. But there are many others, particularly within the alternative lending sphere, that are more flexible when it comes to how many mortgages you can have at one time.
Not only that but there are some strategies you can use to get approved for several mortgages to finance various properties. So, there is technically no specific limit on how many mortgages you can have in Canada. It ultimately depends on your financial profile, the properties you plan to finance, and the lender.
Ways To Finance Another Property With Your Home Equity
The biggest hurdle to buying another property is financing. You may be able to secure a home loan for one property, but getting your hands on additional funds might be a tall order.
However, if you already own one property, you may be able to use the equity you’ve already built to put towards the purchase of another property. Here are some ways to do just that.
Mortgage Cash-Out Refinance
You can access your home’s equity by refinancing your existing mortgage. A refinance involves taking out a new mortgage with a different interest rate and terms and using it to pay off your current mortgage.
Any excess amount can be used towards the purchase of your second home. When you refinance, you can get a mortgage for up to 80% of the value of your home. You can then access the funds from your equity to put towards the purchase of another property.
Home Equity Loan
Also referred to as a second mortgage, a home equity loan involves taking out an additional loan on your home. Like a refinance, a home equity loan gives you access to up to 80% of your home’s value, minus the outstanding balance on your first mortgage. You can use that lump sum of money to help finance an additional property.
Keep in mind, however, that a home equity loan usually comes with a higher interest rate than a first mortgage. That’s because second mortgage lenders don’t have as much stake in the home as the primary lender.
If you default on the loan, the first mortgage lender will be paid off first, and if there’s money left over, the second mortgage lender will be paid. To compensate for this added risk, second mortgage lenders may charge higher interest.
Home Equity Line of Credit (HELOC)
A HELOC provides you with access to a certain amount of equity in your home. But rather than taking out a lump sum of money as you would with a home equity loan, you would have access to a credit limit, similar to a credit card.
You can withdraw as much or as little as you like, without exceeding this limit. Interest is only charged on the withdrawn funds, and once you repay the money, you’ll no longer be charged interest.
Like a home equity loan, your home serves as collateral for the HELOC. You can access up to 65% – 80% of the value of your home and use the money to help cover the cost of an additional real estate purchase.
Where Can You Get A Home Equity Loan?
You can access your home equity by applying for a home equity loan or line of credit through a bank, credit union, or alternative lender. Generally, if you have good credit, a high income, a low debt-to-income ratio and enough equity in your home, you can qualify with most financial institutions.
However, if your credit score isn’t the best, applying with an alternative lender like Alpine Credits is a great alternative. They offer affordable rates and have much lower requirements than traditional banks. So long as you have equity in your home, you have a high chance of qualifying for a loan.
Can You Qualify For Multiple Mortgages?
Certain factors play a significant role in your ability to get approved for multiple mortgages, including the following.
One of the requirements for mortgage approval is passing the mortgage stress test. The test ensures that borrowers have enough money to cover their mortgage payments if their interest rate increases at some point in the future. When you apply for a home loan, you’ll need to qualify at the Bank of Canada’s 5-year lending rate, or at the lender’s interest rate plus 2%, whichever is higher.
If you’re concerned that you may not be able to pass a mortgage stress test, consider applying for a mortgage with an alternative lender. Alternative lenders are not required to ensure that borrowers pass a mortgage stress test since they are not subject to the same regulations as conventional lenders.
The amount of debt you currently carry relative to your income will also be assessed by a lender before you’re approved for another mortgage. Lenders will closely review your Total Debt Service (TDS) ratio, which measures your total monthly debts, including housing costs, compared to your gross income. Your TDS ratio should be no more than 44%, though it may be possible to qualify for a mortgage with a slightly higher TDS ratio.
Your credit score plays a key role in your ability to get approved for multiple mortgages. This 3-digit number gives lenders an idea of how much of a risk you’ll be.
The higher your credit score, the better. Generally speaking, you should have a credit score of at least 680 to get approved for a first mortgage. For other multiple mortgages, you may require a credit score or high equity to qualify.
While you could get a mortgage with no down payment, the bigger the down payment, the better your chances of mortgage approval. When applying for a mortgage for a second property, the down payment requirements may vary based on your intended use of the property and whether the property will be owner- or tenant-occupied.
For instance, will you be using the additional property as a vacation home for you and your family, or as an investment property? Will you live in the home, or will you be renting part or all of the home out to a renter?
If you’re using the second property for personal use, you’ll likely have to meet the same down payment criteria as a first home. But investment properties that will be entirely occupied by a tenant may require a larger down payment of at least 20% of the purchase price.
How To Get A Home Equity Loan
Before you apply for a home equity loan, there are some steps you should take to maximize your chances of loan approval and snag the lowest interest rate.
Step 1. Find Out How Much You Need
Before you apply for a home equity loan, find out exactly how much you need to finance the purchase of another property. There are limits to how much equity you can access with these types of loans. Most lenders will allow you to tap into no more than 80% of your home’s equity.
Step 2. Get Your Finances In Order
To boost your chances of getting approved for a home equity loan, you’ll want to make sure your financial and credit profile is strong. Your income, debts, and credit score will determine whether or not you can get approved, how much equity you can borrow, and the rate you’re charged.
Step 3. Compare Options
Take some time to shop around for home equity loans among different lenders to compare the best deals. Compare the interest rates, fees, loan terms, and closing costs, and get quotes from several lenders based on your financial profile. You can comparison shop online using Loans Canada’s CompareHub to find the best rates and check your credit score for free.
Step 4. Apply
Once you’ve chosen the home equity loan with the lowest rate and best terms, complete and submit your application, along with all necessary documents.
Step 5. Close The Loan
After loan approval, you’ll sign your loan contract and close on the transaction. But before you do, carefully review your contract to ensure you understand all terms and conditions.
Are There Risks Of Having Multiple Mortgages?
The more loans you carry at once, the higher the risk, for both you and the lender. In this case, you have a higher chance of being turned down for another mortgage. Or, the lender may charge you a much higher interest rate to offset their risk.
For instance, you may experience a sudden exodus of tenants from your rental properties and have a tough time filling vacancies. In the meantime, you’re stuck covering your carrying costs without any rent coming in.
Or, your properties may suffer significant repair damages due to a natural disaster or vandalism. Meanwhile, the properties may be uninhabitable, which means no rent collected until all repairs have been made.
The value of your properties may also take a dive if the market fluctuates. This can negatively affect your equity.
There’s also the risk of having your properties repossessed if you default on your mortgages. The properties collateralize the mortgages used to finance them. Failing to keep up with mortgage payments puts you at risk of losing your collateral.
These are just some of the possibilities. And the more properties you own and mortgages you carry, the greater your risk will be.
Are There Benefits Of Having Multiple Mortgages?
Holding several mortgages at the same time also offers some advantages. For starters leveraging other people’s money allows you to add more properties to your investment portfolio without having to come up with the money yourself. Borrowing money to buy more properties will help you generate more income and create more wealth with real estate.
There are also some tax perks available with having multiple mortgaged properties. You may be able to deduct several expenses from investment properties. This includes maintenance fees, advertising costs, insurance, and property management fees.
Final Thoughts On How Many Mortgages Can You Have In Canada
So, how many mortgages can you have in Canada? That depends on your financial health and investment portfolio. Many lenders may offer at least four or more if your portfolio is valuable and your credit health is strong. Others may offer fewer mortgages at once if your financial and investment profiles aren’t as healthy. Taking out additional mortgages can help you expand your real estate investments, but make sure you understand all the risks before leveraging more debt.