What is a Junior Mortgage?

Introduction

A junior mortgage is a loan that is second priority for lean considerations than an earlier loan. A junior mortgage is also called a second mortgage. As the name suggests, the second mortgage is sanctioned after the first loan has been issued. Just like the first mortgage, the value of the home/property becomes the collateral for the junior mortgage. However the junior mortgage is less important that the first loan.

Junior mortgages generally come with higher interest rates and shorter loan tenures than the primary mortgage. This amounts to higher amounts of money going out as monthly installments. The overall cost of the loan is also higher. However junior mortgages are still less costly than unsecured loans.

Why Junior Mortgage

A junior mortgage helps to have additional down payment or closing cost money. When this is the purpose, the junior mortgage is sanctioned more or less at the same time as the primary mortgage. This is not a desirable situation for some lenders, as the borrower does not usually have any equity in the property. However some lenders are more open about granting junior mortgages when the borrower meets certain criteria.

Junior mortgages can also come in handy when the borrower wants to access his or her home equity. This liquidated equity then can be used in many ways- improving the home, education costs and so on.

How to Avail Junior Mortgage

The junior mortgage is taken as secondary priority, so borrower defaults are a higher risk factor to the lender. If the property under question is sold, the secondary lender can stake a claim only as long as the primary lender is paid the full loan amount. For these reasons, lenders are generally more careful in dealing with applications for a junior mortgage.

The borrower has to meet certain criteria of the lender to avail a junior mortgage. These criteria include ability to repay the junior mortgage alongside the original loan. The lender usually evaluates factors such as the borrower’s credit history, employment track record, income, assets and liabilities and so on. Every person who obtains a first mortgage does not become eligible for a junior mortgage.