In the current GTA real estate market, many homeowners are sitting on a goldmine of equity but feel “locked in” by the low interest rates they secured years ago. If you need capital for a home renovation, a child’s education, or debt consolidation, you face a critical financial choice: Should you break your current mortgage to refinance, or keep it intact and add a second mortgage?
The Refinance Route Refinancing involves breaking your existing mortgage contract and replacing it with a new, larger loan. While this simplifies your payments into one monthly bill, it often comes with significant downsides:
- Prepayment Penalties: If you have a fixed-rate mortgage, the “Interest Rate Differential” (IRD) penalty for breaking early can be thousands of dollars.
- Rate Loss: You may be forced to trade a 2% or 3% interest rate for today’s higher market rates on your entire loan balance.
The Second Mortgage Solution A second mortgage allows you to leave your first mortgage untouched. You keep your low interest rate on the bulk of your debt and only pay the current market rate on the new funds you borrow.
- Lower Initial Costs: You avoid the heavy penalties associated with breaking a first mortgage.
- Speed: Second mortgages can often be funded much faster than a full bank refinance—sometimes in as little as 48 to 72 hours.
- Specific Use Cases: This is often the preferred route for short-term needs where you plan to pay off the debt or refinance the total amount later when rates drop.
Which Strategy Fits Your Numbers? As a mortgage professional with a CPA and MBA background, I always tell my clients: “The lowest rate isn’t always the lowest cost.” To truly understand which path is cheaper, you have to look at the blended rate and the total interest paid over time.
For a deep dive into the mechanics of these loans, including how they are appraised and the importance of a clear exit strategy, read my comprehensive guide:
Second Mortgages Explained: When Do They Make Sense for Homeowners?
Get a Custom Blueprint Every situation is different. If you want to run the numbers on your specific property to see if a second mortgage is your best move, let’s talk or visit my full site at MortgageMaurice.ca
Maurice Kwok, CPA MBA is a licensed Ontario Mortgage Broker (FSRA #M13000496) with Sherwood Mortgage Group (FSRA #12176). Serving the GTA since 1995, he specializes in simplifying complex financing with clear, practical advice. Maurice leverages his CPA and MBA background to help homeowners and investors make informed, strategic mortgage decisions.
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