Short answer
A HELOC is a revolving line from a bank, qualified on income, credit, and the mortgage stress test, and usually the cheaper option when you can get one. A private second mortgage is a fixed-term loan qualified mainly on equity, built for files a HELOC will not approve. Reach for private only after a HELOC has genuinely been ruled out.
Why the bank declined the HELOC in the first place
HELOCs are qualified like any other bank credit product: income documentation, credit score, existing debt load, and the mortgage stress test all apply. If your income is hard to document, your credit has recent bruises, or your total debt service ratio is already stretched by your existing mortgage, a bank can decline a HELOC even when you have genuine equity sitting in the property.
Our Ontario private mortgage guide explains that most private lenders sit outside the framework that produces that stress-test decline, which is exactly why they can approve files a HELOC cannot.
How a private second mortgage is structured differently
A second mortgage ranks behind your existing first mortgage on title. If the property is ever sold under enforcement, your first mortgage is repaid in full before the second sees anything, and that ranking is the whole reason a second costs more than a first.
A private lender funding a second is making an equity decision more than an income decision. Second Mortgages Explained covers how position on title works and when a second beats refinancing your whole first mortgage, which is worth reading alongside this comparison.
The real trade-offs
A HELOC is revolving, so you draw and repay as needed and generally pay interest only on what you use. A private second is a lump sum for a fixed term, with the full amount accruing interest from day one, whether you have spent it or not.
A HELOC, when approved, is priced close to your existing mortgage. A private second is priced well above it, because the lender is taking on both second position and, often, a file a bank has already declined.
What it costs
Expect a private second mortgage to carry an interest rate above conventional pricing, a lender fee and usually a broker fee each calculated as a percentage of the loan, legal fees on both sides, and an appraisal. A HELOC, by comparison, typically carries setup costs closer to a standard mortgage product, which is one more reason to rule it out first rather than assume it is unavailable.
Read the full guide for your province, Private Mortgage Lending in Ontario or Private Mortgage Lending in Alberta, where typical ranges for rates, lender fees, broker fees, loan-to-value, and term are set out in full. Every figure varies by file and none of them is a quote.
When private is genuinely the only route left
If your income cannot be documented the way a bank requires, your credit has recent, unresolved issues, or your debt service ratio fails the stress test even though the equity is clearly there, a private second can be the only way to access that equity right now. Treat it as a bridge, not a destination. Build the plan to refinance into a HELOC or a conventional second once the specific issue that blocked you is resolved.
Frequently asked questions
Should I try for a HELOC before considering a private second?
Yes, in almost every case. A HELOC is cheaper when it is available, and a broker can confirm quickly whether one is realistic for your file before you look at private options.
Can I have both a HELOC and a private second mortgage on the same property?
It depends on the combined loan-to-value a private lender will accept once your HELOC balance and limit are factored in. Your broker will tell you the limit for your specific file.
Does a private second mortgage affect my ability to get a HELOC later?
Not directly, provided it is paid as agreed. A clean payment history on the second is exactly the kind of evidence a bank wants to see before approving a HELOC afterward.
Is a private second more expensive than just refinancing my whole mortgage?
Not always. If your existing first mortgage rate is well below current pricing, breaking it to refinance the full balance can cost more in penalty than a second costs in interest. Run both numbers before deciding.
