Second Mortgage Rates
“How The Costs Of Different Sources Of Second Mortgage Facilities Are Determined”
Because of the higher risk associated with a second mortgage position, lenders will add a risk related premium into the interest rate.
As a result, second mortgage rates can be anywhere from 2% to 4% higher for a similar type of first mortgage calculated on the property.
However, the actual posted rate can vary considerably depending on the interest term you’re considering and the type of mortgage product.
As an example, lets say that a homeowner has two mortgages in place. The first mortgage is from a traditional bank lender and has a five year term and effective interest rate of 5%. The second mortgage is from a private lender, has one year interest term set at a rate of 14%. Because the first mortgage is from an institutional lender and the second from a private, there will be a greater range between the interest rates.
On an apples to apples basis where you’re comparing an institutional first mortgage to an institutional second, or a private first to a private second, the rate spread between the first and second mortgages will be in the 2% to 4% range most of the time.
Its also not uncommon to see a home owner with an institutional first mortgage and a private second. Institutional seconds can be harder to secure due to the higher perceived risk which causes borrowers to locate and secure private seconds which are once again at still higher rates than an institutional second mortgage.
The one exception where registered 2nd mortgages can actually be less than a comparable first mortgage is on home lines of credit.
Typically, a home line of credit is registered as a second mortgage with a floating interest rate pegged at between prime and prime plus 2 percent. In many cases, depending on the level of the prime lending rate at any given point of time, the line of credit rate can be lower than the interest rate of the first mortgage. Situations where this can occur typically have the first mortgage with a long term interest rate higher than the prime or floating rate due to the fact that the interest rate is fixed for a period of time.
If you require information regarding second mortgage rates, I would suggest that you give me a call and I will make sure you get all your questions answered.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel