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The second mortgage sits behind the first mortgage; the home is normally used as collateral. This means that if the home is sold, the proceeds of the sale pay off the “first” mortgage first, and the balance pays the “second” mortgage. As a point of interest, property taxes and condominium fees rank ahead of the first mortgage and upon sale are paid out first before the mortgage or any other junior liens.

Typically a second mortgage carries a higher interest rate and is for a shorter time frame than the first mortgage. Occasionally, secondary financing is used to assist a home buyer with coming up with a portion of the down payment. You will still be required to qualify to carry the two mortgages; however, utilizing a first and second mortgage may be advantageous when a buyer is very close to reaching a conventional financing down payment. Doing this will offset the mortgage insurance premium. This is something to discuss with your lender if you find yourself very close to meeting the 20 percent down payment required for conventional financing. A comparison of the interest rate cost, combined with any other legal and registration expenses versus the cost of mortgage default insurance will determine if this strategy is worthwhile.