In 2025, many Canadian homeowners will tap into the value of their homes to access extra funds for renovations, debt consolidation, education, or unexpected expenses. Two standard options for borrowing against your home’s value are a second mortgage and a home equity loan.
But how do they differ? And more importantly, which option makes more sense for you this year?
Whether you’re new to these terms or trying to decide between the two, this blog will guide you through the key differences, pros and cons and what to consider before choosing. Plus, we’ll show you how working with the right mortgage broker—like AKAL Mortgages—can simplify the entire process.
What Is a Second Mortgage?
A second mortgage is a loan taken out on top of your existing mortgage. It’s called a “second” because your primary mortgage is the first loan on your home. The second mortgage uses the equity (the value of your home minus what you owe) as security for the lender.
Key Features of a Second Mortgage
- You still make payments on your first mortgage.
- The second mortgage is a separate loan with its own interest rate and terms.
- It can be a lump-sum loan or a line of credit (depending on your chosen type).
- It usually has higher interest rates than your first mortgage because it’s riskier for lenders.
What Is a Home Equity Loan?
A home equity loan is very similar to a second mortgage—it also lets you borrow against the value of your home. However, the term “home equity loan” is often used to describe a lump-sum loan based on your home equity, usually with a fixed interest rate and monthly payments.
Some people also include Home Equity Lines of Credit (HELOCs) under the home equity loan umbrella.
Key Features of a Home Equity Loan
- You receive a lump sum upfront.
- You repay it with fixed monthly payments.
- The interest rate is usually lower than unsecured loans but may still be higher than your first mortgage.
- Your home is collateral, so failure to repay could lead to foreclosure.
Which Option Makes More Sense in 2025?
In 2025, Canada’s interest rates remain a key factor in deciding which borrowing option to choose. Homeowners are being more cautious, looking for stability and flexibility simultaneously. Here are a few points to help you decide:
Choose a Second Mortgage If:
- You already have a great rate on your first mortgage and don’t want to refinance.
- You need a large amount of money quickly.
- You want flexibility—like using a line of credit instead of a one-time loan.
- You’re using the funds to start a business or renovate.
Choose a Home Equity Loan If:
- You want a fixed interest rate and predictable monthly payments.
- You prefer the simplicity of a one-time lump sum.
- You’re paying for specific one-time expenses like education or medical bills.
- You want to avoid fluctuating rates (which can happen with a second mortgage or HELOC).
Things to Consider Before Deciding
Your Credit Score: Lenders will check your credit score to determine eligibility and set interest rates. A better score can get you a lower rate.
Your Available Home Equity: You can typically take up to 80% of your home’s appraised value, less the amount you owe on your mortgage.
For Ex:
If your home is worth $700,000 and you owe $400,000, your available equity is $160,000 (80% of $700,000 = $560,000 – $400,000).
Interest Rate Trends in 2025
Interest rates in Canada are still relatively high in early 2025, so choosing a fixed-rate home equity loan may offer more stability. However, if rates drop, a second mortgage with a variable rate could save you money over time.
Fees and Closing Costs
Both options involve legal fees, appraisal fees and administrative costs. Due to the additional risk, a second mortgage may have slightly higher fees.
How to Apply for a Second Mortgage or Home Equity Loan in Canada
Applying for either option is easier when you hire a professional mortgage broker who understands your needs and how to deal with lenders. Here’s a general step-by-step guide:
- Know your credit score and gather financial documents.
- Estimate your home equity.
- Decide how much you want to borrow.
- Compare lenders or work with a mortgage broker to find the best rate.
- Submit your application, including income verification and home appraisal.
- Get approval, sign documents, and receive your funds.
Working with a Mortgage Broker: Why It Matters
Regarding second mortgages or home equity loans, having an experienced mortgage broker can help you save time, money and stress. Brokers have access to:
- Multiple lenders, including those that specialize in second mortgages
- More flexible options for people with credit issues or non-traditional income
- The knowledge to help you choose the right loan for your situation
Why AKAL Mortgages Is Your Best Choice
If you’re considering a second mortgage or home equity loan in 2025, AKAL Mortgages can help. Here’s what makes AKAL is the right choice for Canadians:
- Experienced Brokers: They understand the market and will find the solution that fits your needs.
- Tailored Advice: Whether you’re self-employed, have less-than-perfect credit, or need quick funding, they’ve got your back.
- Wide Lender Network: Access to multiple lending partners means better rates and faster approvals.
- Transparent Communication: No hidden surprises—just honest guidance and straightforward answers.
Don’t navigate this decision alone. Let AKAL Mortgages help you unlock the full potential of your home—whether through a second mortgage or a home equity loan.
Final Thoughts
In 2025, choosing between a second mortgage and a home equity loan depends on your budget and financial goals, your comfort with interest rates, and how you plan to use the funds. Both options can be smart moves when used wisely and require careful thought.
If you are ready to hire a mortgage agent, contact AKAL Mortgages for personalized, expert advice that prioritizes your needs.