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As a homeowner, it’s always a good idea to understand all the ins and outs of mortgages, including how to refinance both a first and a second mortgage. One of the best things about refinancing is that if done properly there’s potential to save a lot of money. There are countless reasons why you might want to refinance your second mortgage, including but not limited to lowering your monthly payments or lowering your interest rate.

Furthermore, if your financial situation has recently changed then refinancing your second mortgage can help you renegotiate the term of your loan. In certain cases, you might also be able to consolidate your first and second mortgages into one loan. If you have a mortgage or two you should always keep refinancing as an option, it’s a great way to move around your finances, get some much need money, or reduce your loan payments.

Learn how to pay off your mortgage early.

Best Time to Refinance Your Second Mortgages

Your Credit Score is Better – If you’ve been able to significantly increase your credit score since taking out a second mortgage, you could qualify for a lower rate if you refinance. 

Interest Rates Have Decreased – If interest rates have fallen since you’ve first taken out a mortgage then refinancing makes sense. You’ll be able to get a lower rate which, in turn, means you won’t pay as much interest and will ultimately save money.

Change Loan Terms –  By refinancing you’ll be able to renegotiate your loan terms. You could potentially increase or decrease your terms to better suit your needs. For example, if you have a 25-year long second mortgage, you may be able to bring it down to 10 or 15 years. You’ll not only pay off your loan faster but you’ll likely get a lower rate as well.

Switch to a Fixed Rate – If you’re currently working with a variable rate but would like to switch to a fixed rate, due to rising interest rates or a financial change, then refinancing can be a solution. 

You Need More Money – If the amount of equity has grown in your home and you need extra funds, then refinancing your second mortgage can help you gain access to that.  With extra funds, you could consolidate debt, especially high-interest debt, into more manageable payments. 

Types of Second Mortgages

Second mortgages involve borrowing against the equity in your home. The two most popular ways to do that is through a home equity line of credit (HELOC) or home equity loan. 


A HELOC is a line of credit that allows you to borrow against the equity in your home. Like a credit card, you’re able to withdraw up to a certain credit limit for a certain period of time (usually up to 10 years). During that period you’ll be required to at least pay the interest amount each month, however, after the draw period ends, you’ll have to make payments toward your interest and principal. Moreover, you won’t be able to borrow any more money once the draw period ends. 

Home Equity Loan

A home equity loan is another way to borrow money against your home equity. Like a regular loan, you’ll receive a lump sum of money which you’ll have to pay back in installments plus interest. Rates are typically fixed and terms are usually longer than a HELOC which may make it more affordable.

Check out how to refinance a regular mortgage.

How To Refinance a Second Mortgage

If you decide to refinance your home, consider following these steps to ensure refinancing makes sense for your situation. 

  1. Understand the costs of refinancing
  2. Find out If you qualify for refinancing
  3. Find your refinancing lender
  4. Arrange your paperwork
  5. Review and sign

Understand The Costs of Refinancing

Before you make any decisions you need to figure out whether or not refinancing is really in your best financial interests. Will you actually benefit financially from refinancing your second mortgage? 

Refinancing usually involves a number of fees and closing costs. In general, it can cost between 3% to 6% of your loan. As such it’s important to calculate your cost and see if your savings outweigh the costs. 

Moreover, you should take a look at your financial situation now, then figure out what it would be like if you were to refinance your second mortgage. Will you still have enough liquid cash available to you to pay your bills and other daily expenses? Will your savings take a big hit? Refinancing a second mortgage will take some work so it’s important that you make sure it’s actually financially advantageous for you and your financial situation.  

Find Out If You Qualify For Refinancing

This step goes hand in hand with step one, make sure you’re in a good financial position. This means you’ll need to get a copy of your credit report and possibly even pay for your credit score. If your credit report is less than favourable you might consider working on it for a while before you decide to refinance your mortgage. 

The main reason we suggest you do this is that lenders tend to base interest rates on your creditworthiness. In general, lenders will evaluate three main factors to see if you’re eligible for refinancing: 

  • LTV Ratio – Lenders will use your equity to calculate your LTV ratio (loan-to-value ratio). Lenders typically require your LTV ratio to be 80% or lower. However, some lenders are willing to lend even if you have 90% or higher. Your LTV ratio is calculated by dividing the amount you owe on your mortgage by the current value of your home.  
  • Credit Score – As mentioned, lenders will require a credit check to determine if you’re creditworthy. The higher you score the more likely you’ll qualify for a lower interest rate, which is one of the main reasons Canadians refinance. 
  • Debt – Lenders often check your debt-to-income ratio or your debt service ratio. These ratios are standard formulas lenders use to determine if you can handle more debt. If your ratio is too high, then you’re likely to get rejected or qualify for a higher rate. In general, lenders look for a debt service ratio of 32%  for your mortgage and mortgage-related debts and no more than 40% for your total debts.  

Find Your Refinancing Lender

It’s always a good idea to ask your lender if they are willing to refinance your second mortgage with a lower interest rate. If they’re willing you may be able to avoid some fees. However, if your lender is not willing to refinance your second mortgage then you’ll need to find another lender who is. Make sure you compare different lenders and acquire quotes before you make your final decision. Remember your number one goal is to make refinancing financially beneficial. 

Arrange Your Paperwork

Once you’ve chosen which lender is the best match for your refinancing needs, you should arrange all the potential documents you’ll need to apply. In general, you’ll need documents that will allow your lender to evaluate your debt, assets, income, and equity.  This can include your bank statements, tax returns,  pay stubs, and more. Organizing your paperwork will help the application process go more smoothly. 

Review and Sign

Once you’ve applied and have been approved, you’ll need to read through the contract and make sure you understand all the terms and conditions before you sign anything. Depending on which type of lender you’ve chosen you’ll either meet with a representative in their office to look over and sign the documents or it will be sent to your home. Whichever situation you end up in, do not sign the contract without first reading through it. If you don’t understand something ask for clarification and if you have any questions make sure you ask them. 

Check out what happens when you break your mortgage contract early.

Documents Required to Refinance a Second Mortgage

Depending on the lender you choose to refinance your second mortgage, you’ll need to meet a number of requirements and provide certain documents for verification. In general, lenders will typically request: 

  • Personal identification – Government-issued photo ids to verify your identity.
  • Income verification – Documents such as your pay stub or tax return will be required to verify your employment and income details. 
  • Debt – You also need to provide your bank statements so they can calculate your debt-to-income ratio.
  • Asset – You’ll also need to provide details about the property or collateral you’re using. 
  • Mortgage details – Lenders will also require documents that show your remaining mortgage balance.
  • Other documents – You may also need to provide your property tax payments and home insurance papers.

Frequently Asked Questions

Can you roll over your HELOC into your mortgage? 

You could roll over your HELOC into your mortgage through the cash-out refinancing option. Cash-out refinancing allows you to take out a new mortgage that is larger than your current mortgage. The difference between the mortgage amounts is the amount you can use to roll over your HELOC into your mortgage. 

Will my credit score affect my ability to refinance? 

Your credit score will impact your ability to refinance as lenders use your credit score to determine your creditworthiness. Moreover, if you have poor credit, you may qualify for a lower rate.

How much equity do I need to refinance a second mortgage? 

In general, lenders require you have 20% equity in your home. However, some lenders may be willing to go as low as 10%. In other words, if your LTV ratio is lower than 80% – 90%, you’ll be eligible to refinance your second mortgage. 

Bottom Line

To successfully refinance your second mortgage here are the main points you should remember…

  • Make sure refinancing will be financially beneficial to you
  • Make sure that your current financial situation is in a good place
  • Always check with the lender who holds your second mortgage first
  • Always try to refinance at a lower interest rate
  • Double-check all paperwork and documents

If you follow these steps and choose a lender that best suits your current financial situation then you should have no trouble refinancing your second mortgage and reaping all the benefits you hoped for.

Priyanka Correia, BComm avatar on Loans Canada
Priyanka Correia, BComm

Priyanka Correia is a Marketing Coordinator and personal finance expert at Loans Canada. Priyanka completed her Bachelor's degree in Marketing at Concordia University and has published work that has been mentioned in various news media. She is passionate about money management and educating Canadian consumers about how to take control of their financial lives.

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