Second Mortgages and HELOCs

Second mortgages are loans against the equity of your home. In a second mortgage, we leave your first mortgage completely intact and source additional money from an entirely different lender. The amount of your second mortgage depends on the equity you have in your home. (Your home equity is the value of your house minus all the debts you have against your home.)

HELOC stands for Home Equity Line of Credit. This is a revolving line of credit that lets you borrow money when you need it, up to a specified limit. With a HELOC, you can access and repay the money whenever, similar to a credit card. 

A second mortgage comes in the form of a home equity loan, which is a lump sum amount, or a Home Equity Line of Credit (HELOC), which is a revolving line of credit, much like a credit card.

A home equity loan is a lump-sum payment which you will pay back in monthly installments, just like your first mortgage. A home equity loan is more accessible for people with lower credit scores, and/or less equity in their property. Generally, home trusts and private lenders offer these types of loans, at higher interest rates than a HELOC.

According to the Canadian government, you can borrow up to 80% of the value of your home, after subtracting the balance on your first mortgage. 

To qualify lenders will look at 3 things:

1. Equity – typically for between 5% and 20% equity, you qualify for a home equity loan. If there’s more than 20% equity you might qualify for a HELOC. 
2. Income – Lenders will look at your income to make sure you can keep up with the repayments on your second mortgage, whether it’s a loan or a HELOC.
3. Credit score –  A credit score of 650 or higher will help you qualify for a HELOC. The better your credit, the lower your interest rates will be, and the more likely that you’ll be approved for a second mortgage.