A mortgage that is subordinate to another mortgage is called a?

A mortgage that is subordinate to another mortgage is called a?

• A. Senior mortgage
• B. Junior mortgage
• C. Wraparound mortgage
• D. Participating mortgage

Answer: (B)

Lien priority is what this question tests. When more than one mortgage exists on a property, the first loan recorded has the senior lien and gets paid first if the borrower defaults. A loan that is subordinate to that senior mortgage is called a junior mortgage, often referred to as a second mortgage. This position makes the junior lender riskier because they’re paid only after the first loan is satisfied, which is why junior loans typically carry higher interest and tighter terms. If the property doesn’t sell for enough to cover both loans, the junior lender may not receive the full amount owed. For context, a senior mortgage is the primary lien, not subordinate. A wraparound mortgage is a separate financing arrangement that wraps a new loan around the existing loan, and a participating mortgage involves the lender sharing in some of the property's future profits or appreciation.

Lien priority is what this question tests. When more than one mortgage exists on a property, the first loan recorded has the senior lien and gets paid first if the borrower defaults. A loan that is subordinate to that senior mortgage is called a junior mortgage, often referred to as a second mortgage. This position makes the junior lender riskier because they’re paid only after the first loan is satisfied, which is why junior loans typically carry higher interest and tighter terms. If the property doesn’t sell for enough to cover both loans, the junior lender may not receive the full amount owed.

For context, a senior mortgage is the primary lien, not subordinate. A wraparound mortgage is a separate financing arrangement that wraps a new loan around the existing loan, and a participating mortgage involves the lender sharing in some of the property's future profits or appreciation.