The bank turned you down. Now what? Well, if you ask me, one of the best options is a second mortgage. I’ve been helping Alberta homeowners use this financial tool for about a decade, so I wanted to share more about how it all works.
It can feel overwhelming. I get it. (And I’m not one to lie to you and tell you there aren’t some drawbacks to this process).
Understanding how a second mortgage works can feel overwhelming, but the concept is simpler than you might think. It’s become a practical solution for everything from debt consolidation to emergency expenses.
Let’s break down everything you need to know about second mortgages in Alberta, including what they are, how they work, and whether one might be right for your situation.
What is a second mortgage? A simple definition
Let’s start by cracking open the dictionary I use most often, known as the World Wide Web, to help us define a second mortgage. Canada.ca says, “A second mortgage is a second loan that you take on your home. It has the same features as a mortgage.”
Pretty simple.
A second mortgage is an additional loan you take out on your home while you still have your first mortgage. Your home equity is the center of this whole thing.
Now you may be thinking:
Hey, Darrell, take a step back. What’s home equity again?
I’ve got you covered. Your home equity is calculated by subtracting how much you owe on your first mortgage from what your home is worth. It’s what is used as collateral when you take on a second mortgage.
So, your first mortgage is the original loan you took out to buy your home. Easy. The second mortgage sits behind that and lets you do some of the following when the banks turn you down:
- Consolidate debt
- Renovate your home
- Make it through an emergency
- Invest in the stock market
I’ll go into detail on these later in this article, but let me give you a real-world example to explain better how a second mortgage really works.
Here’s How It Really Works
Let’s say your home in Edmonton is worth $500,000. You still owe $300,000 on your first mortgage. That means you have $200,000 in equity. Too easy.
A second mortgage would let you borrow against that $200,000 equity. Now, how much you can actually access depends on a few factors—where your home is located, its value, and how marketable it is.
Okay, Darrell, slow down. What do you mean by marketable?
Good question. Marketability is how easy it would be for us to sell your home if things went sideways. A $500,000 home in Edmonton (population over 1 million) is pretty marketable, so we might lend up to 80% of your home’s total value.
Here’s the math: 80% of $500,000 is $400,000. Subtract your $300,000 first mortgage, and you could access up to $100,000 through a second mortgage.
But let’s say you own a $100,000 property in a small town. That’s harder to sell quickly, so we’d probably cap it at around 50% loan-to-value (LTV) to protect both of us. In that case, you’d have much less available to borrow.
Our standard maximum is 75% LTV for most properties. We go higher, up to 80%, in major centres for moderately priced, marketable homes. And when prices climb over $1,000,000, marketability drops again, so we usually stick closer to 75%.
The takeaway? Location and property value matter when figuring out how much you can borrow.
Alberta Homeowners, Meet Your New Financial Tool
Applying for a second mortgage isn’t that different from your first mortgage application. There are some differences.
You’ll need to share more information when applying for a second mortgage. Things like:
- Your current income and employment situation.
- Your existing debts and monthly expenses.
- Details about your first mortgage, including your remaining balance and payment history.
- Your home’s current market value, which usually requires an appraisal.
- Your credit history and score.
Here’s where things get important for Alberta homeowners facing credit challenges: second mortgage lenders like ours are often more flexible than traditional banks.
We focus on your home equity rather than just your credit score.
The Interest Rates Are A Big Drawback (And Your Home Is Collateral!)
Second mortgages typically come with higher interest rates than first mortgages. And honestly, it’s high. Twelve percent is typical for what we do. That’s the real drawback. If you’re okay with that, then we’re happy to help you get a second mortgage.
First, the lender is in “second position,” which means that if you default on both mortgages, the first mortgage lender gets paid first from the proceeds of the sale of your home. Sounds risky. And it is if you’re not sure you can make the payments. That extra risk for the second mortgage lender translates into higher rates, because private lenders like ours would be put in a bind as well if things went wrong.
Second, many people seeking second mortgages have experienced credit difficulties, which further increases the lender’s risk.
In Alberta in 2025, second mortgage rates can range anywhere from around 7% to 15% or higher.
As you can imagine, these all play a role in what your interest rate might be:
- Your credit score.
- Your loan-to-value ratio (how much you’re borrowing compared to your home’s value).
- Your income stability.
- The lender you work with.
Second mortgage terms are shorter, too. While first mortgages often come in five-year terms, second mortgages frequently have one- to three-year terms. This shorter timeframe allows you to improve your credit situation and refinance into a better rate later.
Monthly payments
Your first mortgage payment stays the same. Your second mortgage comes with its own payment schedule, which you’ll need to factor into your monthly budget.
If you borrowed $50,000 at 10% interest and qualified for an interest-only loan, your payment could be as low as $416 per month.
If you can make it work a second mortgage is a good option for getting funds you otherwise wouldn’t have access to.
[Side-eye at those big banks]
Combined with your existing first mortgage payment, you’ll need to ensure your budget can comfortably handle both obligations.
This is why it’s so important to be realistic about what you can afford before taking on a second mortgage.
Why Most People Seek Out A Private Lender
Second mortgages serve different purposes for different people. Here are some of the most common reasons Alberta homeowners tap into their equity with a second mortgage.
Debt consolidation
If you’re carrying high-interest debt on credit cards or personal loans, a second mortgage can help you consolidate everything into one payment at a lower interest rate.
Credit card interest rates are wild. If you can consolidate that debt with a second mortgage, you could save money.
Home renovations
Alberta’s housing market has remained relatively stable, and many homeowners are choosing to renovate rather than move. A second mortgage can fund kitchen remodels or other home improvements.
You’re making improvements that are increasing your home’s value. That’s awesome!
Emergency expenses
Life likes to surprise (and not always in a good way). Medical emergencies, unexpected job loss, or urgent home repairs can cause significant stress. A second mortgage provides a way to access funds when you need them.
Investment opportunities
Some homeowners use second mortgages to fund investment properties or business ventures. This strategy carries more risk, so it requires careful consideration and planning.
Again, Let Me Tell You About The Risks
Second mortgages can be helpful financial tools, but don’t be fooled into thinking that there aren’t some real risks in taking this route. People come to us because they need help. They also trust us. They tell me all the time that they’re grateful I wasn’t some sleezy salesperson trying to force them into a second mortgage.
I’m more than happy to help, but I also want to be honest with you about the risks before you dive in.
Your home is on the line. That shouldn’t be taken lightly. Both your first and second mortgages use your home as collateral. If you fall behind on payments and can’t catch up, you could lose your home to foreclosure.
That’s why it’s absolutely critical to be honest with yourself about whether you can afford both mortgage payments. If things get worse, what would you do then?
Also, even though you might be consolidating debt at a lower rate than your credit cards charge, a second mortgage still means paying interest on a large sum of money. Over time, that interest adds up.
Run the numbers carefully. Make sure the total cost of a second mortgage makes financial sense compared to other options.
Remember those shorter terms we mentioned? They’re a double-edged sword. On one hand, they give you a chance to rebuild your credit and refinance. On the other hand, they mean you’ll need to renew or refinance relatively quickly.
If your financial situation hasn’t improved by the time your term ends, you might have trouble finding a new lender or end up with another high-rate mortgage. That can be a hard cycle to get out of.
Some Alternatives To Look Into
A second mortgage isn’t your only option. I really like Alberta homeowners through these options because there might be some better routes for them to take.
Home equity line of credit (HELOC)
A HELOC is another easy concept; it provides you with a line of credit secured by your home equity. You can get approved for a certain credit limit and borrow and repay as needed.
Again, it’s not all great.
The con is that Most HELOCs require good credit and are offered by traditional banks. If your bank has turned you down, a HELOC might not be available. And that’s why many people are coming to us for a second mortgage.
Refinancing your first mortgage
If you have enough equity, you could refinance your entire first mortgage for a higher amount and take the difference in cash.
This approach gives you just one mortgage payment, but it typically requires better credit than a second mortgage. It also resets your amortization period, which means you could end up paying interest for longer.
What to look for in a lender
If you’ve decided a second mortgage makes sense for your situation, the next step is finding a lender who will work with you.
Look for lenders who:
- Specialize in working with borrowers who have credit challenges.
- Are transparent about their rates and fees (we provide ourselves on this)
- Take the time to explain the process and answer your questions.
- Have positive reviews from other borrowers in similar situations.
At Draft Financial, we work with Alberta homeowners every day who’ve been turned down by their banks. We understand that past credit issues don’t define your future, and we focus on finding solutions that work for your unique situation.
Moving forward with confidence
Hopefully, you’re no longer asking, “How does a second mortgage work?”
I’ve answered that. Now, the first step toward making an informed decision about your finances is to set up a call with us.
We want to explore your options and help you decide whether or not flexible lending solutions are a good fit for your situation. We’re committed to finding an approach that works for your unique situation.
