Second mortgage

A second mortgage is a further loan taken out on a property over which you already have a mortgage, i.e. the security on both loans is the same property.

To obtain a second mortgage, you must apply for it in the same way as a normal mortgage. In order to register the mortgage (i.e. to have it duly recorded and publicly available that the property operates as collateral for the loan) you will need to contact the first mortgagee to gain access to the Certificate of Title.

In most cases, a second mortgagee will also require an agreement with the first mortgagee which stipulates the priority amount or amount secured and payable of each loan. This is called a ‘Deed of Priority’. Primarily, the first mortgage will rank above the second, i.e. if you default and the property is sold to cover your debt, the initial mortgage will be satisfied in first, with remaining funds going towards repaying the second mortgage.

For example, say you have a mortgage on your house for $500,000 with Lender A, and a second mortgage on your house for $500,000 with Lender B. If you couldn’t pay back the loans, and the house was sold for $950,000, Lender A would be paid $500,000 and Lender B the remaining $450,000.

Second mortgages are high risk for lenders and therefore more difficult to obtain for borrowers.