Are you looking for ways to access funds for home renovations? Are you making an early new year’s resolution to get rid of debt? Do you want to expand your horizons and invest in another property? If so, getting a second mortgage could be an option for you.

What is a second mortgage?

A second mortgage is an additional loan taken out on a property that already has a mortgage – allowing you to borrow money in exchange for putting your home up as collateral. It usually comes with a higher interest rate compared to a primary mortgage and can be offered in the form of a home equity line of credit (HELOC), a home equity loan or a private mortgage.


A HELOC is a loan that allows you to borrow money at any time, up to a certain credit limit. It’s considered a second mortgage with a variable interest rate. This means you’ll be required to make two monthly or bi-weekly payments: one for your mortgage and one for your HELOC.

Home Equity Loan

A home equity loan is a fixed-amount of money that you borrow based on the available equity in your home. It can have either a variable rate or a fixed rate and allows you to borrow up to 80% of your home’s value.

Private Mortgage

A private mortgage is a home loan that’s not represented by a traditional bank, credit union or monoline lender. You can expect it to come with additional fees and higher interest rates compared to other mortgage options.

When should I get a second mortgage?

1. Debt consolidation

Although second mortgages have higher interest rates than first mortgages, they are still lower compared to high interest credit cards, auto loans and other major debts. Consolidating your debt can help to improve your credit score as well as increase your chances of qualifying for a mortgage with a prime A or B lender in the future.

2. Funds for home improvement

A second mortgage provides access to additional funds that can be used for home renovations, which can eventually increase the value of your home. If your family is growing or you want to build a home office, this is one way you can remodel and invest back into your home without having to relocate entirely.

3. Investment in another property

If home renovations aren’t necessary, you may also consider using these additional funds to expand your real estate portfolio and make a down payment on a second property.

What do I need to qualify?

The more home equity you have available, the greater your chances are of qualifying for a second mortgage. Lenders will also want to verify that you have a steady source of income and are able to meet your monthly payments for both your first and second mortgage. Some key factors they’ll be looking at include:

  1. Employment income: Lenders want to ensure you have a reliable source of income so you can make your monthly payments on time.
  2. Credit score: You will require a strong credit score of 650 or higher for HELOC or home equity loans, while private mortgages have options that accommodate those who are self-employed or with lower credit scores but at a higher interest rate.
  3. Property: Borrowers will need to have an existing property for lenders to secure a second mortgage.

What are the risks?

Higher interest rates

While interest rates for second mortgages are usually lower than credit cards, they’re still often higher than the rate of your primary mortgage. This is something to keep in mind as you’ll want to make sure you can afford to do this.

Overspending home equity

In the case of home equity loans, the quick access to cash can be enticing to borrowers and some may find themselves in a situation where they are taking more money than they actually need. This can lead to higher debt obligations in the future, especially if interest rates were to increase. If you are considering a second mortgage, it’s important to budget and use these funds wisely without digging a deeper hole.


As mentioned, your lender will require you to use your primary home as collateral to secure a second mortgage. In the event that you are unable to make payments, you run the risk of losing your home through foreclosure, which can have serious implications to your living and financial situation.

As you can see, getting a second mortgage is not a decision you’ll want to make overnight. Our expert team of Mortgage Advisors at Homewise will not only walk you through this process, but help you make sure this is the right decision for you and your current financial situation. To learn more and get this process started, apply online in just five minutes.