When Does a Private Second Mortgage Make Sense in Ontario?

Not every homeowner qualifies for a bank refinance or HELOC. In Ontario, many turn to private second mortgages when they need fast access to equity or don’t meet traditional lending rules.

But when does a private second mortgage actually make sense — and when should you avoid it?

This guide breaks it down clearly.

What Is a Private Second Mortgage?

A private second mortgage is a loan secured against your home in addition to your first mortgage.

It sits in second position, meaning:

• Your first mortgage gets paid first if the property is sold.
• The private lender takes on more risk — which is why they charge higher interest.

Unlike banks, private lenders focus more on:

• Property value
• Available equity
• Exit strategy

Less on:

• Income
• Credit score
• Financial documents

When a Private Second Mortgage Makes Sense

A private second mortgage may be the right solution if you’re in one of these situations:

1. You Have a Short-Term Funding Need

Private second mortgages are ideal for temporary situations, such as:

• Bridging a gap before selling your home
• Paying off high-interest debt
• Completing renovations for resale
• Covering legal or tax obligations
• Business cashflow needs

If you plan to repay or refinance within 6–24 months, a private second mortgage can be a smart move.

2. You Can’t Qualify for a Bank Refinance

Many homeowners turn to private second mortgages because:

• Their income is variable or self-employed
• They’re rebuilding credit
• They have tax arrears or recent consumer proposals
• They don’t meet strict bank lending rules

Private lenders are more flexible and will often consider your equity position over your financial history.

3. You Need Funds Fast

Traditional banks can take weeks or months.

Private second mortgages can close in days or even hours, making them ideal for:

• Preventing foreclosure
• Avoiding power of sale
• Securing time-sensitive opportunities

4. You Have Significant Equity

Private lenders focus heavily on Loan-to-Value (LTV).

It often makes sense if:

• Your total mortgage debt stays under 75–80% of your home’s value
• You have a clear plan to repay or refinance
• Your property has strong resale value

When a Private Second Mortgage Might NOT Make Sense

A private second mortgage might be risky if:

❌ You don’t have a repayment or exit plan
❌ You’re using it for long-term lifestyle expenses
❌ Your property has little remaining equity
❌ The interest cost will put you under long-term strain

It’s meant as a solution — not a permanent financial patch.

Costs Involved in a Private Second Mortgage

Here’s what borrowers usually pay in Ontario:

Cost Typically Range: Interest Rate 8% – 15% Lender Fee 2% – 6% Broker Fee1% – 3% Legal Fees $1,500 – $3,000 Appraisal$ 300 – $600

These are higher than bank loans because private lenders take on more risk.

Common Uses for Private Second Mortgages

Ontario homeowners typically use them for:

• Debt consolidation
• CRA tax arrears
• Renovations or construction
• Business financing
• Preventing foreclosure
• Emergency expenses

Real Example (Client Scenario)

A Toronto homeowner:

• Owed CRA $45,000
• Had bad credit after a consumer proposal
• Couldn’t refinance through the bank

They used a private second mortgage to:
✔ Pay off the tax debt
✔ Stabilize finances
✔ Refinance back into a traditional lender later

Final Thoughts

A private second mortgage makes sense when:

✅ You have strong equity
✅ It’s a short-term solution
✅ You have a clear exit strategy
✅ Traditional lenders aren’t an option

It can be a powerful tool — if used correctly.

Think a private second mortgage might be right for you?

Speak with an Ontario alternative mortgage specialist today to explore your options with no obligation.

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