At PADS Financial, we get a lot of inquiries into second mortgages. With the current financial situation in Quebec – high cost of living, lack of real estate supply and household debt at record levels – many homeowners are looking for solutions, like second mortgages, to access more cash or pay down debt. We strive to inform and impower our readers and clarify any misconceptions or uncertainty around financial loan products. Today we propose to you the following deep dive into second mortgages. So, sit back, close TikTok and let’s learn!

Let’s start from the beginning. What is a second mortgage?

A second mortgage, as its name indicates, is a second loan taken out on a property. While first mortgages are usually taken out to purchase a home, second mortgages can be used to access funds from the equity built up in the property for things such as home renovations, debt consolidation or other expenses. For all intents and purposes, a second mortgage and a home equity loan are the same thing.

Does a second mortgage impact your credit?

Taking out a second mortgage won’t hurt your credit score however your credit score may be temporarily impacted by the credit check done during the application process. In fact, if you are diligent about making your second mortgage payments on time, a second mortgage can even help you improve your credit score.

Is a second mortgage the same as refinancing?

No. Refinancing means renegotiating your existing mortgage while a second mortgage is a separate mortgage often with a different interest rate and likely with a different financial institution. Obtaining a second mortgage instead of refinancing can help you take advantage of better terms and avoid costly penalties from refinancing before the end of your term, if you require the funds immediately.

What is the interest on a second mortgage?

Ah, the million-dollar question. Interest rates on second mortgages are often higher than on first mortgages because they are riskier for lenders for the simple reason that the first mortgage has priority on the collateral if the borrower defaults on the loan.  

The interest rate will also depend on the equity on the property and the property value.

If you’re looking to find out what rate you could obtain with a second mortgage, fill out the second mortgage interest rate quick quote form PADS here . We’ll send you a personalized estimated interest rate for your loan in 30 minutes (or the next business day if you submit it in the evening or on weekends. Yes, even our underwriting model takes the weekend off).

How much equity do I need for a second mortgage?

Once the real value of your property is established, lenders will look at your first rank mortgage amount and your current equity to determine how much you can borrow. In the image example below, the property is worth $1,000,000, the outstanding loan is $500,000 so $500,000 is the amount from which funds can be borrowed for a second mortgage.

In the best case scenario, a borrower is eligible to take out 80% of the property value minus the mortgage balance. So in the scenario below, for a property worth $1 million with a  $500,000  mortgage, the maximum loan amount would be $300,000 (1M*80%) - 500k)).

Second mortgage calculator

Online mortgage calculators are great tools to play around with and get a general idea of what payments to expect with a second mortgage. Our second mortgage calculator allows you to estimate payments based on loan amounts, credit score as well as loan type.

Second mortgage rates

Interest rates for second mortgages are often determined by the amount of equity a homeowner has in their property; the more equity, the lower the risk for the lender, potentially leading to a more favorable interest rate. These rates are also influenced by broader economic factors, including the prime rate, which is the interest rate banks charge their most creditworthy customers. Lastly, individual factors such as the homeowner's credit score and debt-to-income ratio also play significant roles in setting the specific rate for a second mortgage. PADS Financial second mortgage rates hover between 10% to 18%.

Can a second mortgage pay off the first mortgage?

Borrowers decide what they choose to do with the funds received from a second mortgage so in theory yes, you could use a second mortgage to pay off your first mortgage, but it may not be the best idea because second mortgages often come with higher interest rates than first mortgages due to being considered higher risk. Another thing to consider is that the amount you can borrow with a second mortgage is based on the difference between your home's current value and your first mortgage balance which may not be enough to pay off a first mortgage.

Is a second mortgage the same as a Heloc?

A second mortgage is not the same as a Home equity line of credit (heloc). Without getting into too many details, here are ways Heloc’s and home equity loans are different:

  • Helocs work like credit cards – where you have a maximum amount you can borrow and you used it as needed while a Home equity loan is a lump sum payment.
  • Interest rates on Helocs are usually variable while home equity loans have a fixed rate so the payment is the same every period.

Second mortgage vs home equity loan

A second mortgage and a home equity loan are the same thing; a second rank loan on a property that allows homeowners to borrow from the equity in that property.

How do I apply for a second mortgage?

We’re delighted you’ve asked! As a homeowner with equity on your property, you can apply for a second mortgage for PADS Financial in minutes. Simply visit PadsFinancial.com and apply online. The application process is simple and streamlined and you can expect an answer in 24 hours. Our team is standing by!

Recommended articles

The Mortgage Stress Test in 2024

In 2024, many homeowners find that having a mortgage is synonymous with feeling stressed. Ironically, this isn't the kind of stress that the 'stress test' refers to. Owning a home has always been a major milestone accompanied by significant expenses. However, the stress and anxiety associated with this decision have significantly increased.

All you need to know about second mortgages

At Pads Financial, we get a lot of inquiries into Second Mortgages. With the current financial situation in Quebec – high cost of living, lack of real estate supply and household debt at record levels – many homeowners are looking for solutions, like second mortgages, to access more cash or pay down debt. We strive to inform and impower our readers and clarify any misconceptions or uncertainty around financial loan products. Today we propose to you the following deep dive into second mortgages. So, sit back, close TikTok and let’s learn!

Mortgage refinancing in 2024

Why are we dedicating an entire blog to mortgage refinancing? Because Canadian homeowners are on the lookout for creative, outside-the-box solutions to manage their finances effectively and come out ahead.

Debt consolidation vs consumer proposals

Imagine you're juggling a $40,000 load of debt from credit cards and lines of credit, on top of a car loan and a mortgage. Your paycheck just about covers your living expenses, leaving little room to tackle this mountain of debt, while interest continues to escalate. Adding to the strain, it's time to renew your fixed-rate mortgage.

6 things to know when applying for a second mortgage

So, you're ready to apply for a second mortgage. You've explored all the loan options available to you, worked through the numbers with a mortgage calculator, and got your paperwork in order. Before you take the next step, PADS presents a crucial guide on what to expect during the home equity loan application process. This article will revisit some aspects you might already know and reveal others that could surprise you. Being well-informed is key when facing such a significant financial decision. Fully grasping how to secure and utilize a home equity loan is a strategic move that puts you ahead in your financial journey.

Understanding interest rates today: a deep dive

As a homeowner in Quebec, you likely already know that interest rates play a crucial role in your financial life, influencing everything from your mortgage payments to the return on your savings. Yet understanding the ins and outs of these rates, especially when it comes to products like a home equity line of credit or a how home equity loan, can be a challenge. This guide aims to demystify the mechanisms behind interest rates, shedding light on the factors influencing the Bank of Canada’s policy decisions.

How to access your mortgage statements online from major Canadian banks

Discover the essential steps to access your mortgage statements online from all major Canadian banks. Apply for a loan easily with your mortgage statement finder guide

Understanding the 60-day notice (Part 2)

When traditional banks step back, it doesn't mean all doors are closed. This is where private lenders like PADS come into the picture, offering home equity loans that can be a lifeline for homeowners facing a 60-day notice.

Understanding the 60-day notice (Part 1)

In the world of property ownership in Quebec, few things strike fear into the hearts of homeowners like the 60-day notice. But what exactly is this document, and why does it hold such power?

Bridge loans : A homeowner’s pathway to new property ownership

If you’re a homeowner on the market for a property but have accumulated significant debt that has impacted your ability to borrow, a home equity loan from PADS can be your solution.

Credit card debt vs. home equity loans: A guide for homeowners

In the evolving world of personal finance, understanding your options is more critical than ever. For homeowners in Quebec grappling with debt or foreseeing significant upcoming expenses, two common solutions arise: credit card borrowing and home equity loans. Both methods offer immediate financial relief, but they differ vastly in their costs, terms, and long-term effects. This article aims to shed light on these options, equipping you with the knowledge to make informed financial decisions.

Embracing private lending: PADS' innovative approach to mortgages

Private lending, often overshadowed by traditional banking, is coming into its own in Quebec. With rising interest rates in Canada, the gap between conventional and private home loans is shrinking, making private loans increasingly attractive. PADS, a fintech startup, is leading this shift with its private home equity loans, which start at an appealing rate of 9.99%, depending on the client's profile.

Understanding home equity loans in Quebec’s current economic climate

In today's turbulent economic climate, many Quebec homeowners face cash flow challenges. With interest rates at their highest since 2001 and household debt at record levels, finding funds to meet financial obligations or unexpected expenses can be daunting. Among the available options are credit cards, Home Equity Lines of Credit (HELOCs), and home equity loans, each offering unique features and potential implications. This article aims to clarify what a home equity loan is, the differences between private home equity loans and a Home Equity Lines of Credit also known as HELOCs and will answer your most pressing questions about home equity loans in Quebec.