Second Mortgage

A subordinate mortgage effectively uses the first mortgage as collateral while the first one is still active. If the borrower defaults, the first mortgage receives all the proceeds from property liquidation till it is completely paid off. The second mortgage is entitled to similar real estate rights but they are subordinate to those of the first mortgage.

In order to receive the second mortgage, the lender will only lend to a maximum of the difference between the first mortgage and the total estimated value of the new real estate. The lender is careful to estimate the cash flow just to make sure that you can manage to make principal and interest payments alongside the other engagements.

Second mortgages, just like standard mortgages, have different terms depending on the circumstances faced by the borrower. And since the second mortgage starts receiving payments only when the first mortgage has been paid off, the interest rate charged for the second mortgage will usually be higher.