What Is a Subordination Clause and how does it relate to a second mortgage?

Depending on the home equity lender, a subordination clause or agreement most often means that before you can get a second mortgage, the first mortgage company must agree to allow the second mortgage to be placed in first lien position. The new loan then has the priority in case of a foreclosure.

This is especially important down the road if you pay off your first mortgage, because the lender in charge of your second mortgage can then write a new first mortgage and place that in first lien position, which will help protect your interest rate, since the rate for second mortgages is higher.

Terms of subordination agreements can vary by lender, so it is important to have a discussion with yours before entering into any agreement.

Borrowers that have more knowledge, usually get lower rates. Remember to discuss questions and concerns wuith your mortgage lender and weigh your options carefully before signing loan documents.

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