What Is Required To Qualify For A Second Mortgage In Canada?

When you want to make use of your home’s equity to make a large investment or consolidate other types of debt, a second mortgage can be an invaluable asset at your disposal. Because one’s home is placed as collateral in the event that you default on the payments of a home equity loan, this is a risky move to make for many homeowners. You shouldn’t take out a second mortgage to finance luxury or day-to-day living expenses, because you could lose your house if you can’t pay it all back.

If you’re looking to make a hefty investment toward your future, like paying for education or making large renovations for the home you plan to someday sell, a second mortgage can be exactly what’s needed. But first, you need to qualify with your chosen lender to gain access to these funds.

In this article, we’ll explain what is required of homeowners who intend to make use of their home’s equity.

How to Qualify for a Second Mortgage

Because second mortgages, by their very nature, are quite risky lenders like to see very specific things when you apply for a second mortgage. They want to feel confident that you can repay the principal and interest on the loan, as well as handle higher interest payments overall.

What do lenders look at when considering an individual for a second mortgage? Read on to find out.

Credit Score

Few numbers have as significant an impact on the homeownership process than one’s credit score. This is also true of second mortgages. Lenders want to feel assured that they have facilitated a loan to someone who can be responsible in managing different types of debt. A higher credit score means a higher chance of approval, as well as a lower interest rate once approved.


Your home’s equity is how much of it you actually own. If you placed a hefty down payment, of say 20% or more, you may be able to get a second mortgage more quickly. Those who have been making payments regularly and in full on their initial mortgage for quite some time will also have more equity accrued than newer homeowners.

To ensure that borrowing this money to you isn’t a terrible move on their part, lenders will consider the amounts in your financial accounts and calculate – on their own terms – whether or not you will be able to pay everything you will owe.

Debt-to-Income Ratio

This ratio, also known as your DTI, is the difference between your monthly income and your overall monthly expenses. Checking this figure is another way for lenders to check and see if you are capable of repaying all debts owed to them. If your monthly expenses are too close to your monthly income – mortgage included – rejection for a second mortgage is quite likely.

Your Employment History

Individuals with a history of job-hopping don’t tend to be looked upon favorably by lenders. These financial institutions want to know that their client is responsible and has a stable income with which they know they can pay their debts. Those who have experienced long stretches of unemployment are also not very strong candidates for a second mortgage in Canada.

As we said above, a second mortgage can bridge the gap between where you are and where you need to be. This loan can be a wise choice, but only if you can prove – to yourself and to your lender – that you are capable of repaying every cent owed to the institution. If you are unconfident that you can do this, it’s time to put second mortgage aside for now and focus on changing your financial situation for the better.

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