Definition
A second mortgage is a loan secured by a property that already carries a first-ranking mortgage. In case of default and forced sale, the first-ranking lender is repaid first; the second-ranking lender is only paid from the remainder. This subordinate rank translates into a significantly higher interest rate — typically 8% to 15% depending on the profile and lender.
Second mortgages are used to: access home equity without breaking a first mortgage at a good rate (avoiding the IRD penalty), finance urgent renovations, or consolidate short-term debt while waiting for the first mortgage's maturity.
Canadian chartered banks rarely grant second mortgages; they prefer home equity lines of credit (HELOCs). Second mortgages are mainly offered by alternative lenders (B lenders) or private lenders. An AMF broker familiar with alternative markets is essential for navigating these options.