What is a junior mortgage?

A junior mortgage refers to a mortgage that is subordinate to a prior lien or mortgage on the same property. This means that in the event of foreclosure, the holder of the junior mortgage is paid only after all senior mortgages are satisfied. Essentially, the priority of claims determines who gets paid first when a property is sold to recover owed debts. Since junior mortgages are in a lower position in terms of repayment priority, they often come with a higher interest rate due to the increased risk to the lender.

Understanding the role of junior mortgages helps in the broader context of real estate financing. They are commonly used to finance a portion of the property's purchase price that exceeds the amount covered by the senior mortgage. This can be an effective financial strategy for buyers who may not have sufficient down payment resources or for those looking to leverage more of their home equity without incurring high costs.