Key points:
- The ranking of a mortgage is based on when the mortgage is registered on title. This means a first mortgage must be paid off before a second mortgage.
- Second mortgages are often granted through private lenders.
- Second mortgages can help borrowers deal with debt or other financial issues.
All about second mortgages
In this video, we dive deeper into second mortgages, the most common type of private mortgage. We dissect how second mortgage products work, why they can be useful, and how to secure the financing for one.
You can also review the complete private mortgage guide for more detailed information!
Don’t feel like watching? Find the full transcript below!
Chris: [00:00:00] Today we’re going to talk all about second mortgages. Join me as we discuss exactly what a second mortgage is and why it is the most common type of private mortgage. Let’s go.
Understanding mortgage rankings
Chris: [00:00:22] What determines the ranking of mortgages? You probably have heard of first mortgages. In this conversation, we’re talking about second mortgages. There are third mortgages, fourth mortgages, so what the heck are we talking about and what determines the ranking? Well, the concept is pretty simple. The ranking of mortgages is really determined by the order under which they are registered on title. So for the vast majority of Canadians, when you buy your home, your lender’s providing you with a first mortgage, that’s the first mortgage that gets registered on title, and that’s probably the only mortgage you have on title. But there’s nothing preventing you from securing a second mortgage or even a third mortgage on title. The thing to keep in mind about the ranking of mortgages, though, is that if default occurs on any one of the mortgages and the property has to be sold, then the order in which mortgages get paid out is based on the ranking. So first mortgage always gets paid first, then the second mortgage, then the third mortgage, etc. And so it’s for this reason that second mortgages are riskier and tend to carry much higher interest rates and and fees attached to them.
The uses of a second mortgage
Chris: [00:01:41] What exactly makes a second mortgage so useful? Well, it really has to do with life and the circumstances around the need for capital. Very often, when life gives you lemons and you run into some sort of life turbulence, whether it be falling behind on debt, marital issues, health issues, loss of job, business issues, it comes with turbulence that makes it very difficult to deal with an “A” mortgage lender or your first mortgage lender to refinance. So usually the solution involves private money and private money is expensive. So rather than replacing your existing first mortgage, which might be in good standing and maybe a perfectly good mortgage at an excellent interest rate, you’re better off actually keeping that cheap money in place and finding a temporary second mortgage solution. And that is why second mortgages are so popular, because it allows you to keep your overall interest expense low. Now, it may seem well, there’s always a little bit of sticker shock when it comes to the pricing of second mortgages may seem expensive, but you really have to think about the overall weighted average of the interest that you pay on your overall debt. And in many cases, second mortgages provide the perfect solution to get you from point A to point B.
Chris: [00:03:18] My name is Chris Molder. I’m a Toronto based mortgage broker. I have 15 years of experience working with private mortgages and helping people navigate this world.
Need more help or information?
I encourage you to check out the complete private mortgage guide on my website, where I cover all aspects of this type of mortgage financing.
I can help you determine if private mortgage financing is right for you. I’m just a phone call or email away. You can book a call directly into my calendar below, or get in touch with me here.
