What is a Second Mortgage?

Tim Lyon • January 4, 2024

If you're not all that familiar with the ins and outs of mortgage financing, the term "second mortgage" might cause a bit of confusion. Many people incorrectly assume that a second mortgage is arranged when your first term is up for renewal or when you sell your first home. They think that the next mortgage you get is your "second mortgage." This is not the case.


A second mortgage is an additional mortgage on a single property, not the second mortgage you get in your lifetime.


When you borrow money to buy a house, your lawyer or notary will register your mortgage on the property title in what is called first position. This means that your mortgage lender has the first claim against the sale proceeds if you sell your property. If you happen to default on your mortgage, this is the security the lender has in repossessing your property. A second mortgage falls in behind the first mortgage on your property title.


When you sell your property, the lawyers will use the sale proceeds to pay off your mortgages in sequence, the first position mortgage is paid out first, and the second mortgage is paid out second. After both mortgages are paid off completely, you get the remaining equity.


When you secure a second mortgage, you continue making payments on your first mortgage as per your mortgage agreement. You must also then fulfill the terms of the second mortgage. 


So why would you want a second mortgage? Well, a second mortgage comes in handy when you're looking to access some of your home equity, but you either have excellent terms on your first mortgage that you don't want to break, or you’d incur a huge penalty to break your first mortgage. Instead of refinancing the first mortgage, a second mortgage can be a better option. 


A second mortgage is often used as a short-term debt consolidation tool to help provide you with better cash flow. If you’ve accumulated a considerable amount of high-interest unsecured debt, and you have equity in your home, you can secure a second mortgage to lower your overall cost of borrowing. 


If you'd like to know more about how a second mortgage works, or if you'd like to discuss anything related to mortgage financing, please connect anytime!

Tim Lyon

Mortgage Consultant

How Mortgage Rates Work: Fixed vs. Variable

By Tim Lyon • September 26, 2025
What affects mortgage rates? Does the Bank of Canada rate affect fixed-rate mortgages? These are questions that come up all the time, so in this this post, I’ll explain how fixed and variable rates are determined, why they don’t always move together, and what that means for you as a borrower. But to start with the short answer: While Bank of Canada announcements immediately impact variable rates, fixed rates usually have those expectations already baked in long before the announcement. That’s because fixed rates are forward-looking — they reflect where markets think rates are headed, not just where they are today. What Are Fixed and Variable Rates? Fixed Rate The interest rate stays the same for the entire mortgage term. Payments remain consistent, no matter what happens in the market. Variable Rate The interest rate changes during the mortgage term, moving up or down depending on the lender’s prime rate. Payments may stay the same (VRM) or change (ARM). How Do Fixed Rates Work? When you choose a fixed rate, the lender is guaranteeing your rate for the length of your term . To do this, they need to estimate what a fair rate will be over that time. This makes fixed rates more forward-looking — they often reflect not just today’s conditions, but also what the market expects to happen in the future. Key Points About Fixed Rates Strongly influenced by the Canadian bond market (especially the 5-year government bond yield). Lenders adjust their fixed rates based on investor expectations for inflation and future interest rates. Often, Bank of Canada moves are already baked into fixed rates before they happen. Example If bond yields suggest that rates will rise in the next year, lenders may increase fixed rates now, even if the Bank of Canada hasn’t made a move yet. How Do Variable Rates Work? Variable rates move directly with the Bank of Canada’s overnight rate. When the Bank of Canada raises or lowers its rate, lenders adjust their prime rate accordingly, and variable mortgages follow. For borrowers, the most important detail is the discount from prime , because that sets the actual rate you pay. For example, if prime is 4.95% and your mortgage is Prime – 0.5%, your rate is 4.45%. The discounts lenders offer change over time. In periods of economic uncertainty, lenders usually shrink the discount they offer, which can make new variable mortgages less attractive even if prime is coming down. Key Points About Variable Rates Directly tied to the Bank of Canada’s overnight rate, which is reviewed eight times a year. Banks adjust their prime rate in response to these moves. Your actual rate = Prime – discount (e.g., Prime – 0.5%). Example If prime is 4.95% and your mortgage is Prime – 0.5%, your rate is 4.45%. If the Bank of Canada cuts rates by 0.25%, prime drops to 4.70%, and your rate automatically drops to 4.20%. Why Don’t Fixed and Variable Always Move Together? Fixed rates reflect the bond market, which looks ahead at where rates and inflation may go. Variable rates respond directly to Bank of Canada decisions, reflecting current conditions. This is why fixed rates can fall while variable rates stay flat, or vice versa. Next Steps If you’re deciding between fixed and variable, understanding how each is set is the first step. The next is to match the right mortgage type to your budget and comfort with risk. If you’d like to review which option works best for you, I’d be happy to help. Need help with your mortgage? Book a consultation or call 778-988-8409 . Mortgage Term Glossary Amortization: The total length of time it will take to pay off your mortgage completely (typically 25–30 years in Canada). Bond Yield: The return investors get from government bonds. Used as a benchmark for fixed mortgage rates. Discount (Variable Rate): The amount subtracted from prime to determine your actual mortgage rate. Fixed Rate: An interest rate that stays the same for the entire mortgage term. Mortgage Term: The length of your mortgage contract with your lender (typically 1–5 years), after which you need to renew. Overnight Rate: The interest rate at which major banks borrow and lend money to each other, set by the Bank of Canada. Prime Rate: The interest rate banks use as a baseline for loans, influenced by the Bank of Canada’s overnight rate. Variable Rate: An interest rate that changes during your mortgage term based on lender prime rates.

Fixed vs. Variable Mortgages: Which is Right for You?

By Tim Lyon • September 25, 2025
When arranging a mortgage, one of the first decisions you’ll need to make is whether to go with a fixed or variable rate. Both options have their own benefits and challenges, and understanding the differences will help you choose the one that fits your financial situation best. In this post, we’ll break down the differences between fixed and variable mortgages, how they’re priced, the pros and cons of each, and what you should consider before making a decision. What are Fixed and Variable Mortgages? Fixed Rate Mortgage: Your interest rate stays the same for the entire mortgage term. That means your monthly payments won’t change, making budgeting more predictable. Variable Rate Mortgage: Your interest rate changes during the term. There are two main types: Variable Rate Mortgage (VRM): Your payment amount stays the same, but how much goes toward principal vs. interest changes as rates move. Adjustable Rate Mortgage (ARM): Your payment amount itself changes when rates move. How Do Fixed and Variable Mortgages Work? Fixed Your rate is set when you sign your mortgage contract. Payments remain consistent, regardless of whether interest rates rise or fall. Fixed rates are heavily influenced by the Canadian 5-year bond yield. Variable Your rate is tied to your lender’s prime rate, which follows the Bank of Canada’s overnight lending rate (reviewed 8 times a year). Lenders usually offer a discount from prime, such as Prime – 0.4% . You can often lock into a fixed rate at any time (though usually for a term equal to or longer than what’s left on your mortgage). Penalties for Breaking Your Mortgage Fixed The greater of three months’ interest or the Interest Rate Differential (IRD). IRD can be very costly if rates have dropped since you signed. Variable Always three months’ interest — simpler and usually less expensive. Pros and Cons Fixed Rate Pros: Predictable payments, easier budgeting Protection if rates rise Currently about 1% lower than variable, meaning you may qualify for more Fixed Rate Cons: More penalty risk if you break the mortgage early You miss out if rates fall Variable Rate Pros: Benefit if rates decrease Less penalty risk(3 months’ interest) Option to lock into fixed at any time Variable Rate Cons: Payments (ARM) or interest portion (VRM) can rise if rates go up Less predictable for budgeting Lock-in rates may not always be the best available  Quick Summary • Fixed mortgages = stable, predictable, tied to bond yields, but more penalty risk. • Variable mortgages = tied to Bank of Canada, potential savings, lower penalty risk, but less predictable. • VRM vs. ARM = VRM keeps payments steady while ARM adjusts payments with rates. Next Steps Choosing between fixed and variable depends on your risk tolerance, financial goals, and comfort with rate changes. If you’re unsure which option is right for you, let’s talk about your situation and find the best fit. Need help with your mortgage? Book a consultation or call 778-988-8409 . Mortgage Term Glossary Adjustable Rate Mortgage (ARM): A variable mortgage where payments increase or decrease as rates change. Amortization: The total length of time it will take to pay off your mortgage completely (typically 25–30 years in Canada). Bond Yield: The return investors get from government bonds. Used as a benchmark for fixed mortgage rates. Down Payment: The upfront amount you pay toward the purchase price of a home, expressed as a percentage of the total price. Equity: The difference between what your home is worth and what you owe on your mortgage. Fixed Rate: An interest rate that stays the same for the entire mortgage term. Interest Rate Differential (IRD): A penalty calculation for breaking a fixed mortgage when current rates are lower than your original rate. Lock-In: The option to switch from a variable mortgage to a fixed mortgage during your term. Mortgage Term: The length of your mortgage contract with your lender (typically 1–5 years), after which you need to renew. Prime Rate: The interest rate banks use as a baseline for loans, influenced by the Bank of Canada’s overnight rate. Variable Rate Mortgage (VRM): A variable mortgage where payments stay the same, but the principal vs. interest split changes with rate moves. Variable Rate: An interest rate that changes during your mortgage term based on lender prime rates.