Get a free, no obligation personal loan quote with rates as low as 9.99%

Free quote with no impact to your credit

Home \ Mortgage \ Mortgage Guide \ Second Mortgage

Second Mortgages In Canada

Author:

Reviewed By:

📅

Updated On: September 12, 2025

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 access your home’s equity is through a second mortgage in Canada.

Key Points

A second mortgage lets you borrow against your home’s equity.
A second mortgage comes in two common forms: a home equity loan and a home equity line of credit.
Your home serves as collateral, which may help you qualify for the loan more easily and take advantage of better rates.
You can typically borrow up to 80% of your home’s appraised value (first and second mortgage combined).

What Is 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’ll 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’ll have two products to choose from: a home equity loan or a home equity line of credit (HELOC).

Where Can You Get A Second Mortgage In Canada?

Second mortgages in Canada are available from a variety of lenders:

Traditional Lenders

You can apply for a second mortgage from a conventional bank or credit union. These lenders have strict lending requirements. You’ll typically need a good credit score, a strong income, and a low debt-service ratio to qualify for a second mortgage in Canada.

Alternative Lenders

If you have enough equity in your home to qualify for a second mortgage but have poor credit or a higher debt-service ratio, you may have better luck applying with an alternative lender. These lenders focus more on your home equity than on other traditional loan requirements.

Get Started

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service.

Second Mortgage Types: Home Equity Loan And Home Equity Line Of Credit (HELOC)

	Home Equity Loan	HELOC
Fund Availability	One lump sum	Withdrawals on an as-needed basis
Maximum Amount 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 +0.5%
Loan Repayment Schedule	Regular installment payments over a fixed term	– During the draw period, only interest payments are required. – After the draw period, the principal and remaining interest must be paid in equal installments over up to 20 years.

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: With a home equity loan, you’ll have equally divided payments, which can be easier to calculate and budget.
Fixed rates: Many lenders charge fixed interest rates that won’t change during your loan term and are sometimes lower than variable rates.
Easier qualifications: Compared to other loan types, like unsecured personal loans, home equity loans are generally easier to qualify for because they’re secured against your home.

Cons Of A Home Equity Loan

Higher interest rate: The interest rate on a home equity loan will be higher than your first mortgage. That said, the rate is 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.

Learn more: Home Equity Loans & Mortgages

Home Equity Line Of Credit (HELOC)

A home equity line of credit (HELOC) functions more like a credit card, in that you’re 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 thus 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 is only charged on what you use: With a HELOC, interest is only charged on the amount you borrow. Once you pay back what you’ve withdrawn, no more interest is charged. Unlike a home equity loan, you don’t have to pay interest on the entire balance, only the amount you use from your credit limit.
Quick access to funds: Rather than applying for a loan when an expense comes up, a HELOC is a source of funds you can access at any time.
Flexible payments: With a HELOC, you can choose to make multiple, partial, or minimum monthly payments until the draw period ends (around 10 years). Only once the draw period ends are you obligated to start paying off the principal and interest with regular payments.

Cons Of A HELOC

More interest: You might pay more interest overall if you don’t consistently make full payments.
Variable rate: Variable interest rates will 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.
Collateral: If you fail to pay your HELOC, you could lose your home, as it’s used as collateral, as is the case with a home equity loan.

Learn more: Understanding Mortgage HELOC Rules

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 no more than 44% Total Debt Service (TDS) ratio)
Have a consistent source of income

Do You Need Good Credit?

If you’re applying with a traditional bank, you’ll 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’ll need to pass the mortgage stress test.

To pass the stress test, 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 non-federally regulated credit union. These lenders don’t follow the same stringent rules and regulations as big banks, so they may not require the stress test as part of the loan process.

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 – remaining mortgage amount

Let’s illustrate how you can calculate the amount you can borrow with a second mortgage in Canada using an example:

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 – $300,000)

When you plug in the above figures, the formula will look like this:

($650,000 x 80%) – $300,000
= $520,000 – $300,000
= $220,000

In this example, the most you can borrow through a second mortgage is $220,000.

Learn more: When Can I Tap Into My Home Equity?

Pros And Cons Of Borrowing Against Your Home

Although using your home equity can help in many scenarios, it’s important to understand the potential benefits and drawbacks. These can impact your lifestyle.

Pros Of Borrowing From Your Home Equity

You may be able to benefit from the following perks of tapping into your home equity:

Large loans: With enough equity, you can access significant money over a long period, without selling your home.
Alternative to refinancing: Rather than refinancing your home to free up extra cash, you can get a second mortgage. This can help you save on costs such as closing fees that would apply with a refinance.
Good interest rates: Applying for a second mortgage with a lot of equity and healthy finances can earn you better interest rates than unsecured credit products.

Cons Of Borrowing From Your Home Equity

While there are perks from accessing your home equity to cover expenses, consider the following potential downsides too:

Extra payment: Unlike refinancing, a second mortgage is a new loan. This means you’ll need to make another payment on top of your first mortgage payment. This can be tough on your savings and, if handled irresponsibly, can lead to debt, damaged credit, and even the foreclosure of your home if you default.
Fees: There are many other costs associated with the lending process. These include loan origination, appraisal, accounting, and legal fees.
Reduced equity: When you pull equity out of your home in the form of a second mortgage, you’re effectively reducing your equity. Plus, you’ll be adding more debt to the pile.

When Does A Second Mortgage Make Sense?

Here’s a clear breakdown of when a second mortgage makes sense, and when it doesn’t:

When To Take Out A Second Mortgage	When Not To Take Out A Second Mortgage
To fund major upgrades to your home that increase property value.	To spend on non-essential luxuries, like vacations, jewelry, or vehicles that don’t build long-term value.
To consolidate debt and pay off high-interest credit cards or personal loans at a lower rate.	If you’re unsure about your ability to manage two monthly payments.
To use equity as a down payment on a rental or vacation home.	If you haven’t built enough equity.
To start or expand a business with better rates than unsecured loans.	If you can’t qualify for lower interest rates.
To cover large, essential expenses without tapping retirement savings.	If you don’t want to risk losing your home in the event of mortgage default.
To preserve your current mortgage rate and terms if they’re favourable.	When market rates are unfavourable, making the loan expensive.

Additional Reading

How To Borrow Using Your Home Equity

Can You Get A Second Mortgage On A Rental Property?

Should You Use Home Equity As An Emergency Fund?

Final Thoughts

Borrowing from your home equity can be a great option if you’re looking to access larger amounts to cover big expenses or to pay down high-interest debt. Just make sure you’ve considered the potential drawbacks, including putting your home at risk and the extra payments you’ll need to make.

Second Mortgage FAQs

I bought my house last year, can I get a home equity loan?

Generally speaking, you’ll 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.

What happens to my second mortgage when I sell my property?

Typically, two scenarios can play out. You will either need to back your second mortgage in full before the sale of the house, or you’ll need to use the proceeds from the sale of your house to pay off your debt.

Can I pay off my second mortgage early?

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 if you pay off your second mortgage early, and if so, how much they are.

Can I get a second mortgage if I’m self-employed?

Yes, many lenders offer flexible options for self-employed Canadians, especially those with lots of equity.

What documents do I need to apply?

You’ll typically need proof of income, property appraisal, mortgage statements, and photo ID.

What can I use a second mortgage for?

Common uses of a second mortgage in Canada include debt consolidation, home renovations, business funding, education, or buying investment property.

What happens if I miss payments?

If you default on your second mortgage, you risk foreclosure, since your home collateralizes both loans.

Note: Loans Canada does not arrange, underwrite or broker mortgages. We are a simple referral service

A Team of Experts

Get expert tips and guidance from a community of renown personal finance experts right here at Loans Canada. We're here to help you stay informed so you can make the best financial decisions.