Junior Mortgage

A mortgage, such as a second mortgage, that is subordinate in right or lien priority to an existing mortgage on the same realty. In the event of a foreclosure, second and third mortgage loans are repaid only if funds remain after paying the first mortgage. Because they are riskier, they generally carry a higher interest rate.

Generally, the foreclosure of a senior lien extinguishes all junior liens, whereas the foreclosure of a junior lien has no effect on a senior lien; that is, the purchaser at the junior foreclosure sale buys the property subject to the senior lien. There is no legal limit on the number of junior mortgages that can be placed on a property, but there is a practical limit. A lender would never want the loan amount to exceed the borrower’s equity in the secured property.