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Second mortgages

Second mortgage vs refinancing the first mortgage: which costs less?

Updated Sept 2026 · Reviewed by The Lienhouse team

A second mortgage is usually cheaper when the first mortgage is on a good rate, the extra amount is modest relative to it, the need is for under two years, or speed matters. Refinancing the whole debt is usually cheaper when the first mortgage is already expensive, the need is long-term, and the business can qualify with a mainstream lender. The way to decide is a blended cost comparison.

Key takeaway
Keep a cheap first mortgage and add a second for short or modest needs; refinance the lot when the need is long-term, the first mortgage is already dear and a mainstream lender will approve.

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Both routes release the same equity. The difference is what happens to the debt already in place.

A worked comparison

Property worth $3,000,000. Bank first mortgage of $1,200,000 at 6.5%. The company needs $500,000 for 12 months.

Option A: second mortgage.

  • First mortgage stays: $1,200,000 at 6.5% = $78,000 a year.
  • Second mortgage: $500,000 at 0.975% a month = $58,500 a year, plus a 2% fee of $10,000.
  • Total cost for the year: about $146,500. Blended rate on $1,700,000, including the fee: about 8.6%.

Option B: refinance to a private first mortgage.

  • $1,700,000 at 9% = $153,000, plus a 1.5% fee of $25,500, plus discharge and any break costs on the bank loan.
  • Total for the year: about $178,500 or more.

Option C: refinance to a bank at $1,700,000.

  • At 6.8%, about $115,600 plus modest fees. The cheapest, if it is available. It requires full financials, serviceability and several weeks.

So the order is C, then A, then B - but only where C is achievable and there is time for it.

When the second mortgage wins

  • The first mortgage has a rate worth protecting, or is fixed with break costs.
  • The extra amount is small relative to the first mortgage.
  • The need is for 6 to 24 months.
  • The bank would decline or take too long to increase its own facility.
  • The business cannot yet meet bank serviceability, for example because of a tax debt that the new funds will clear.

When refinancing wins

  • The first mortgage is itself a private or high-rate loan.
  • The need is permanent, not temporary.
  • The financials support a mainstream lender at the higher amount.
  • The first mortgagee will not consent to a second mortgage. See second mortgage without bank consent.

The combined path

For many businesses the answer is both, in sequence. A second mortgage now, because it can settle in one to three weeks and does not depend on serviceability. Then, once the problem it solved is behind the business and the financials reflect that, one bank refinance that takes out both loans. The second mortgage is the bridge; the refinance is the destination. The exit should be planned that way from day one - see what is an exit strategy.

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FAQ

What is a blended rate?

The weighted average cost across both loans. A large cheap first mortgage plus a small dearer second can blend to less than refinancing everything at a mid-range rate.

Are there break costs on refinancing?

There can be, particularly on fixed-rate commercial loans, along with discharge fees and new establishment, valuation and legal costs.

Can I do a second mortgage now and refinance later?

Yes, and it is the most common path: a second mortgage solves the immediate need, and a single refinance replaces both loans once the business can qualify.

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Compare both routes on your numbers.

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