Explaining Mortgage Subordination -Jacksonville Refinance
Subordination is the term used when you have more than one mortgage, or lien, on a particular asset. Generally speaking, this applies most often to home mortgages. Often a second mortgage will be taking for home improvement projects or to utilize home equity to pay off other debt.
Should you decide to refinance either mortgage, usually the first and most significant one, the second lien holder will be required to subordinate their position on the asset. This is, primarily, a paperwork issue in such that the terms on the subordinated mortgage do not change and you are no less liable for that debt.
Subordination allows another lender, or the original lender of the first mortgage, to take over the first mortgage without the subordinating lender making any claim to the property for the moment. Technically, your first mortgage is being paid off by the refinancing agency, which would move the second mortgage to the first position, making them due for payoff first, should you later sell the asset. Since the second mortgage is usually a smaller amount, the new lender wil want to secure this first position.
The reason for refinancing the first mortgage may be to obtain a lower interest rate or to further utilize remaining equity in the home. This could increase the size of the first mortgage, essentially increasing the possibility of default to the second mortgage holder. That is the primary reason that the new lender must obtain the subordination, an okay from the second lender, in order to complete the refinancing process.
Visit our partner sites