A second mortgage lets a homeowner borrow against equity without breaking the first mortgage. It can be useful when breaking the first mortgage would trigger a large penalty, but it is usually more expensive, and it adds a second lender with a claim on your home. This guide is for homeowners considering a second mortgage or home equity loan; it is not a product for buying a first home.
How a second mortgage works
The Financial Consumer Agency of Canada (FCAC) describes a second mortgage as a second loan taken on your home, repaid alongside your first mortgage, which you must keep paying. FCAC notes that rates on second mortgages are usually higher than on first mortgages because they are riskier for lenders: the second lender is paid after the first if the home is sold to cover the debt.
A home equity loan is a similar one-time lump sum repaid in fixed amounts over a fixed term. FCAC says most lenders let you borrow up to 80% of your home's value, minus what you still owe on your mortgage.
Hypothetical example. A home is valued at $600,000 and the first mortgage balance is $380,000. At an 80% limit, total borrowing could reach $480,000, so the most a lender would advance on a second mortgage is about $100,000 ($480,000 minus $380,000), before fees and subject to the lender's own credit and income rules. Many lenders lend less.
Seven questions to ask before you sign
- What is the total cost, not just the rate? Ask for the annual rate, every fee (lender, broker, appraisal, title search, title insurance and legal fees, which FCAC lists among typical costs) and the total you will repay over the term.
- How long is the term, and what happens at maturity? Second mortgages often have short terms. Know whether renewal is offered, at what cost, and what your plan is if it is not.
- What is the exit plan? Selling, refinancing into one mortgage at your first mortgage's renewal, or paying it down from income. Write it down with dates.
- Is it cheaper to break or refinance the first mortgage instead? FCAC explains that the prepayment penalty for breaking a mortgage is usually the higher of three months' interest or the interest rate differential. Get the actual penalty from your lender and compare it with the full cost of the second mortgage, using the home equity calculator to check how much equity is available.
- Does the first mortgage allow it? Some first mortgages are registered as a collateral charge for more than you owe, which can affect what another lender will do; see our guide to collateral and standard charges.
- Can it be prepaid without a penalty? If your plan is to pay it off early, check the prepayment terms and any minimum-interest or early-discharge fees.
- Is the broker or lender licensed? Mortgage brokers and many private lenders must be licensed or registered in their province. Check the licence with your provincial regulator before sharing documents or signing.
Risks to weigh
Your home is the security. FCAC warns that if you cannot repay money borrowed against your equity, the consequences can be serious, including foreclosure. With two lenders, a default on either loan can put the home at risk. Higher rates, short terms and fees can also make a second mortgage expensive if your exit plan takes longer than expected.
Our interpretation: a second mortgage tends to make the most sense as a short bridge with a clear end date, and the least sense as a long-term fix for ongoing budget shortfalls. Alternatives to compare include a home equity line of credit (which FCAC caps at 65% of home value), a full refinance at renewal, or a debt management plan through a non-profit credit counsellor.
Next steps
Gather your first mortgage statement, a recent property tax bill and proof of income, then get written quotes from more than one source. You can compare second mortgage lenders listed in the directory; listings are not verified or endorsed, so check each licence yourself.
Sources
- Financial Consumer Agency of Canada, Borrowing against home equity, 2025-10-15. Accessed 2026-11-14.
- Financial Consumer Agency of Canada, Mortgage fees: Prepayment penalties, 2025-10-15. Accessed 2026-11-14.
This article is general information, not financial or legal advice. Terms, limits and fees vary by lender and province. Speak with a licensed mortgage professional or a lawyer before borrowing against your home.
