What is the difference between a first, second, and third mortgage?

What is the difference between a first, second, and third mortgage?

The terms first, second and third mortgage can be very confusing for new and current homeowners so we at AAR Mortgage have decided to clear it up for you here!

The number before the mortgage, whether it be first, second or third etc. denotes the seniority in chain of title of the mortgage.

A first mortgage is a first lien on the property that secures the mortgage. A first mortgage has priority over all other liens or claims on a property in the event of a default. They are considered low-risk investments, although the quality of real estate that is used as collateral is extremely important in determining the riskiness of the mortgage.

A second mortgage is a mortgage that has a secondary or junior position behind a first mortgage. It is simply a mortgage that is taken out on a property that is already mortgaged. This kind of mortgage allows homeowners to borrow money from the equity that is remaining in their home, without having to refinance their current mortgage. Many Canadians use a second mortgage to help them achieve their financial goals especially with today’s marketplace and the low mortgage rates we are seeing.

A third mortgage is a lien on a property that is junior to the first and second mortgages already existing on the property. Technically, you can have a third, fourth fifth etc. mortgage and any of those mortgages could be a “home equity” loan meaning that they would be loans secured by the remaining equity in the property. In the event of a default on the mortgages, the third mortgage will be paid only after the first and second mortgages are paid. Monthly payments will have to be made and paid on all three mortgages simultaneously.

Contact us for more information on the different kinds of mortgages you can get as well as your loan options.