What You Have to Know About the Rates of Second Mortgage in Canada

Written by Posted On Thursday, 13 September 2018 07:52

Mortgage rates are not the same throughout Canada. This applies to all types of mortgages including second mortgages. The reasons why mortgage rates fluctuate depend on many factors but location is a major determinant.

Who Sets Second Mortgage Rates?

The second mortgage rates are set by individual lenders within reasonable limits (for instance, they can’t charge above a certain rate without attracting the attention of authorities). These lenders can be banks or private individuals known as private lenders.

Who Lends Second Mortgage in Canada?

The lenders of second mortgages in Canada tend to be private lenders because larger institutions such as banks typically don’t want to bother with high-risk loans. A second mortgage is considered a high-risk loan because the primary mortgage will be the priority for compensation in the event of the borrower defaulting.

Unlike banks, private lenders are willing to take higher risks because they can draw up their own rules (within reason). However, because of the higher risk that they take, private lenders tend to be very location-sensitive and their rates can vary by region.

Rates Vary by Area

Expect that rural rates won’t be the same as city rates because of the risks involved. Basically speaking, higher rates apply to loan that carry a higher risk, such as in the case of rural loans because going after them will also cost more for the lender in the event of a default. Loans for properties in the city are charged a lower rate because they’re easier to manage for the lender.

Second Mortgage Fees

There are a number of fees that you can expect to pay when applying for a second mortgage. Some lenders will ask for 3-5% of the value of the mortgage depending on whether it is a closed term second mortgage or if it is an open term second mortgage.

Generally speaking, you should be ready to pay the following fees if you’re looking to get a second mortgage:

  • Appraisal fees
  • Insurance Fees
  • Legal Fees
  • Notary Fees

Note that lenders won’t lend the full appraised amount and not even the estimated equity because of risks involved. The fees will also be heavily influenced by other factors such as time, location, and real estate market volatility as well as the assessed ability of the borrower to pay. It is best to talk to mortgage professionals in your area to have an idea of the rates to expect as well as which private lenders can possibly offer the most favourable terms. Shopping for a private lender is really the way to go before applying for a second mortgage.

Are you looking for a second mortgage in Toronto or the Greater Toronto Area? We can help! Visit us at: http://mortgagecentralcanada.ca/second-mortgages/

For more Toronto mortgage news and advice on home equity loans, second mortgages, debt consolidation and more, please visit our mortgage blog here. 

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