How a refinance works
A refinance replaces your entire existing mortgage with a new, larger one, paying off the old loan and giving you the difference in cash. This means your original mortgage rate and term end, and you start fresh under new terms, which matters if you have a favourable existing rate.
How a second mortgage works
A second mortgage sits behind your existing first mortgage as a separate loan, leaving your original mortgage untouched. This is useful if breaking your current mortgage would trigger a large penalty or if you want to keep a good existing rate in place.
- Refinance: replaces the whole mortgage
- Second mortgage: adds a separate loan behind it
- Penalty exposure differs significantly
Cost comparison
Refinancing through a bank generally has lower ongoing interest costs but may include a penalty for breaking your current term early. A second mortgage avoids that penalty but usually carries a higher rate on the new borrowed amount specifically.
Which one makes sense
If your current mortgage rate is high compared to today's rates and your penalty is small, refinancing the whole thing often makes sense. If you have a great existing rate with years left on the term, a second mortgage that leaves it untouched is usually the better fit.
Frequently asked questions
- Which option is cheaper, a refinance or a second mortgage?
- It depends on your existing mortgage rate and penalty, since a second mortgage avoids a penalty but has a higher rate on the new funds alone.
- Can I get a second mortgage and a refinance at the same time?
- No, but you can compare both and choose the one that gives you a lower overall cost for the amount of cash you need.
- Does a second mortgage affect my first mortgage terms?
- No, your first mortgage stays exactly as is, with the second mortgage simply added as a separate registration on title.