What Are the Interest Rates on Second Mortgages?

As of Jan 2025, interest rates on second mortgages in Canada typically range from 8% to 14%, which are higher than first mortgage rates between 4% to 6%. Second mortgages carry higher rates because they are riskier for lenders, as they are behind the first mortgage in repayment priority should the borrowers default.

Learn More About Second Mortgage Interest Rates

Second mortgages allow homeowners to borrow against their home equity, using it as collateral. Unlike a first mortgage, a second mortgage is subordinate, meaning the lender only gets paid after the first mortgage in case of default. This increased risk results in higher interest rates for second mortgages.

Factors influencing these rates include credit score, home equity, loan amount, and lender type. Below, we answer the most frequently asked questions about second mortgage interest rates in Canada.

What Are the Interest Rates Now for Second Mortgages in 2025?

In January 2025, second mortgage interest rates can vary between 8% to 14% depending on the following:

Lender Type: Traditional banks have lower interest rates for second mortgages compared with non-institutional or private lenders.

Loan-to-Value Ratio (LTV): Higher LTV increases rates.

Credit Score: Lower scores lead to higher rates.

How Do Second Mortgage Interest Rates Compare to First Mortgage Rates?

Second mortgage rates are generally higher than first mortgage rates due to increased lender risk. For example:

First mortgage rates: 4% to 6%.

Second mortgage rates: 8% to 14%.

The difference stems from the secondary repayment position of second mortgages, making them riskier for lenders.

What Factors Determine Interest Rates on Second Mortgages?

Credit Score: Higher scores qualify for lower rates.

Home Equity Available: More equity reduces lender risk.

Loan-to-Value Ratio (LTV): Higher LTV increases rates.

Income Stability: Demonstrating stable income can secure better rates.

Lender Type: Banks offer lower rates than private lenders, but stricter approval criteria apply.

Are Second Mortgage Interest Rates Usually Fixed or Variable?

Interest rates for second mortgages are usually fixed but a few variable rate options are on the market.

Fixed rates: Provide consistent payments throughout the term.

Variable rates: Fluctuate with market conditions, which can lead to savings or higher costs.

Most borrowers prefer fixed rates for stability, especially given the already higher rates of second mortgages.

How Can I Get the Lowest Interest Rate on a Second Mortgage?

Work with a Reputable Broker: Brokers can help you negotiate with multiple lenders to find competitive rates.

Improve Your Credit Score: Aim for a score of 700+.

Lower Your LTV: Get a better rate with a lower loan-to-value ratio, up to a maximum of 80%.

Demonstrate Income Stability: Provide proof of consistent earnings.

Which Banks or Lenders in Canada Offer Second Mortgages?

Major Canadian banks usually only offer second mortgages if the borrower has their first mortgage with the bank, often with competitive rates but stringent approval criteria. A few non-prime lenders, such as Home Trust, First National, and Haventree Bank, offer mortgage products in the second position as a fixed-term product or a HELOC.

How Does My Credit Score Affect the Interest Rate on a Second Mortgage?

Your credit score significantly impacts the interest rate:

Excellent (750+): 8% to 10%.

Good (700-749): 10% to 12%.

Fair (650-699): 12% to 15%.

Poor (<650): 15% or higher, often requiring private lenders.

Improving your score can lower rates and broaden lender options.

Are There Fees Associated with Second Mortgages?

Below are the typical closing costs associated with second mortgages. The closing costs are almost always included in the loan amount to be paid upon closing.

Appraisal Fee: $400 to $500.

Legal Fees: $1,000 to $1,500.

Lender Fees: 1% to 2% of the loan amount.

Broker Fees: 2% to 3% of the loan amount.

Can I Refinance My Second Mortgage to Get a Better Rate?

Yes, refinancing can help secure a lower rate, especially if:

Your Credit Score Improves: A higher score qualifies you for better rates.

Market Rates Drop: Locking in a lower rate saves money.

Your Home Value Increases: Higher equity reduces lender risk.

Refinancing may involve fees, so calculate potential savings before proceeding.

How Do Rates Compare Between HELOCs vs. Second Mortgages?

Traditional second mortgages typically have slightly lower rates than HELOCs in the second position. HELOC rates are slightly higher because of the flexibility that they provide.

Important Factors to Consider About Second Mortgage Rates

1. Loan-to-Value Ratio (LTV):

Almost all lenders have a maximum loan-to-value ratio at 80% of the home’s value. For a $500,000 home with $300,000 owed on a first mortgage, you could borrow up to $100,000 as a second mortgage.

2. Common Uses:

Second mortgages are often used for debt consolidation, home renovations, or major purchases. Understanding repayment terms ensures these loans are a net benefit.

Interest Rates on Second Mortgages in 2025

Second mortgages provide homeowners with access to equity but come with higher interest rates compared to first mortgages. By improving your credit score, reducing LTV, and comparing lenders, you can secure more favorable rates. Understanding the costs, benefits, and alternatives like HELOCs ensures you make informed borrowing decisions. Connect with a mortgage professional to explore your options and choose the best solution for your financial goals.