Deciding Between a Second Mortgage vs. Refinancing in Ontario?

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If you're a homeowner in Ontario and need to access the equity in your home—whether for debt consolidation, renovations, or unexpected expenses—you’ve probably come across two common options: a second mortgage vs. refinancing your existing mortgage.

At first glance, they might seem similar. After all, both let you borrow against your home’s value. But behind the scenes, they work very differently—and choosing the wrong one can cost you thousands of dollars in extra fees or interest.

Let's walk you through the key factors that mortgage brokers use to help homeowners decide which option makes more sense. If you already understand the basics, this guide will help you move from “what are my options?” to “what’s the right move for me?”

Borrower Qualifications: Can You Even Refinance?

This is one of the most important—but often overlooked—questions.

Let’s say your first mortgage was approved by a major bank two years ago. Since then, your credit score has dropped, or your income has changed. Maybe you’ve switched jobs, become self-employed, or your debt has gone up.

Even if refinancing makes sense on paper, your current lender might say no. That’s because refinancing typically means reapplying for a brand-new mortgage, and banks will check everything again—credit, income, debt ratios, and more.

If your financial profile has changed, you may not qualify for the same rate, or even at all, with a traditional lender.

This is where a second mortgage from a B lender or private lender can be the fallback. These lenders focus more on the equity in your home than your credit score or income documents. That makes them more flexible if your situation has shifted since your original mortgage was approved.

In this case:

If you still qualify for an “A lender” mortgage → refinancing may work.

If you don’t qualify anymore → a second mortgage through a broker is often the better path.

Maturity Date of the Existing Mortgage

Aside from your qualifications, one of the first things your mortgage broker will ask is: When does your current mortgage term end?

This is important because refinancing means breaking your existing mortgage, and that often comes with a prepayment penalty. If you’re only one or two years into a five-year term, that penalty can be significant—sometimes thousands of dollars.

If your mortgage is close to maturity—say, within the next 12 months—then refinancing might be more attractive, especially if you’re already planning to renew. But if you’re mid-term, many homeowners prefer to leave the first mortgage alone and add a second mortgage instead, to avoid triggering that penalty.

Interest Rate of the Existing Mortgage

Let’s say you’re two years into a five-year fixed mortgage—and you locked in at 1.99% back when rates were low. Today, fixed mortgage rates are closer to 4.5–5.5%. If you refinance now, you’ll lose that low rate and replace it with a much higher one.

For many homeowners, keeping their current low-rate mortgage is a priority. A second mortgage allows you to access equity without touching your original mortgage. You get the funds you need while preserving your low payments on the first mortgage.

On the other hand, if your current mortgage rate is already high, or if you’re in a variable-rate mortgage that’s jumped up in recent months, refinancing might make sense—especially if you're consolidating other high-interest debt.

In short:

Low existing rate? Keep it and consider a second mortgage.

High or rising rate? Refinancing may give you better control long-term.

Second Mortgage Amount Compared with the First

When deciding between a second mortgage and refinancing, one of the biggest things to think about is how much you actually need to borrow—especially compared to how big your first mortgage already is.

If you borrow a small amount as a second mortgage, even though it comes with a higher interest rate, the overall impact on your total borrowing cost can be small. That’s because your first mortgage (with the lower rate) makes up the majority of your debt, and your total “blended rate” is heavily weighted toward that larger, cheaper loan.

You can also think of it like this:

Your blended rate is a weighted average between your first and second mortgage rates, based on how much you owe on each.

A Simple Mathematical Example

Let’s say you have:

$800,000 left on your first mortgage at 2.5%

You want to borrow $50,000 as a second mortgage at 10%

Instead of refinancing the full $800,000 at a new higher rate, you keep your low-rate first mortgage and layer on a smaller second mortgage.

Calculate the Blended Rate Using This Formula

To figure out your blended interest rate when combining a first and second mortgage, you can use this simple formula:

Blended Rate = (Loan 1 ÷ Total Loan Amount × Interest Rate 1) + (Loan 2 ÷ Total Loan Amount × Interest Rate 2)

Plugging in the numbers from our simple mathematical example above:

Blended Rate = ($800,000 ÷ $850,000 × 0.025) + ($50,000 ÷ $850,000 × 0.10)

Blended Rate = 0.0235 + 0.0059 = 0.0294

Blended Rate = 2.94%

In this case, if you were to refinance the full $850,000, the new interest rate would need to be lower than 2.94% to make it worthwhile. Otherwise, keeping your low-rate first mortgage and adding a second mortgage would be the better option.

This example shows how the size of the second mortgage relative to the first has a huge impact on your overall borrowing cost. When the second mortgage is small compared to your low-interest first mortgage, it barely moves the needle on your blended interest rate.

For Debt Consolidation or Renovations

Both refinancing and second mortgages are commonly used to pay off high-interest debt or fund home renovations. The better choice depends on your timeline, how much you need, and how your first mortgage fits into the picture.

Second mortgage may be better if:

You need funds quickly

You don’t want to disturb your existing low-rate mortgage.

The renovation or debt consolidation amount is modest compared to your first mortgage

Refinancing may be better if:

You qualify with your existing lender or another “A” lender.

Your mortgage is nearing its renewal date, or the penalty to break it is small.

Costs of a Second Mortgage vs. Refinancing

When most people think about borrowing, the first thing they look at is the interest rate. But it’s not just about which option has the lower rate—it’s about the total cost of borrowing, including penalties, fees, and how long you plan to carry the loan.

Refinancing:

Often offers lower interest rates, especially if you qualify with a major lender.

Can include prepayment penalties if you break your existing mortgage early.

Involves legal fees, discharge fees, and sometimes appraisal costs.

Second Mortgage:

Comes with higher interest rates compared with first mortgages

No penalty to your first mortgage, so you keep your original low rate.

Setup and closing costs include broker fees, lender fees, legal fees, and an appraisal

So how do you decide?

If your first mortgage rate is very low and the penalty to break it is high, getting a second mortgage—even at a higher rate—might still cost you less overall. But if you need a large loan and your mortgage is close to maturity, refinancing everything might save you more over the long run.

Your broker can run the numbers to compare total interest costs, penalties, and fees side-by-side. It’s not always obvious which one is better just by looking at interest rates alone. Always consult a reputable mortgage professional.

What Happens if You Plan to Sell or Move Soon?

If you think you might sell your home or move within the next year or two, you’ll want to be cautious with both options—but especially with refinancing.

Things to consider:

Refinancing into a 5-year term and selling early could mean another round of prepayment penalties.

Some mortgages aren’t portable (meaning you can’t transfer them to a new home), or only allow portability under strict conditions.

Second mortgages are often short-term (1–2 years) and easier to pay off when you sell, though some may carry discharge fees or early payout fees too.

If your plans aren’t set in stone, your broker might recommend a short-term second mortgage so you stay flexible until you know what’s next.

Always Consult a Reputable Mortgage Broker

These decisions are rarely black and white. There’s a lot to consider—interest rates, penalties, loan size, credit, timing, and your personal goals. That’s where a mortgage broker comes in.

A good broker will:

Calculate the blended rate for keeping your first mortgage + second mortgage

Show you the total cost of borrowing with each option

Shop your deal to B lenders or private lenders if your bank says no

Help you understand the short-term and long-term impact of each path

Structure your deal to fit your timeline, whether you’re staying, selling, or improving your home

Most importantly, a broker can give you unbiased advice. Unlike a bank, they’re not tied to one lender—they’ll help you find the solution that’s actually best for you.

Deciding Between Second Mortgage vs. Refinancing

There’s no “one-size-fits-all” answer when it comes to choosing between a second mortgage and refinancing. It depends on your mortgage maturity, your interest rate, the amount you want to borrow, and whether you still qualify with your current lender.

If your mortgage rate is low and you’re still mid-term, a second mortgage might be the smarter move—especially for short-term needs. If you’re nearing renewal and need to borrow a larger amount, refinancing may offer better value.

Either way, it’s worth talking to a mortgage broker to review the numbers, understand the trade-offs, and choose the path that makes the most sense for your goals.