What is a Junior Mortgage?
Real Estate Dictionary
A mortgage lower in lien priority than another.
A junior mortgage, also known as a second mortgage, is a type of loan that is secured by the same collateral as a primary mortgage but has a lower priority in terms of repayment in the event of default. This means that if the borrower defaults on the loans, the proceeds from the sale of the property will first go towards paying off the primary mortgage, and any remaining proceeds will go towards paying off the junior mortgage.
Because junior mortgages carry a higher risk for lenders, they generally have higher interest rates than primary mortgages. They are often used by homeowners to tap into their home's equity, which is the difference between the home's market value and the outstanding balance on the primary mortgage. Homeowners may use the proceeds from a junior mortgage for home improvements, debt consolidation, or other expenses.