Subordination is the process of classifying home loans (mortgages, HELOC or home loans) based on importance. For example, if you have a home line of credit, you actually have two credits – your mortgage and HELOC. Both are at the same time secured by the security of your home. By subordination, lenders assign these loans a “deposit position”. In general, the first deposit position is assigned to your mortgage, while your HELOC becomes the second right of pledge. Individuals and companies turn to credit institutions when they have to borrow funds. The lender is compensated if he receives interest on the amount borrowed, unless the borrower is in arrears in his payments. The lender could require a subordination agreement to protect its interests if the borrower takes out additional pledge rights over the property, for example. B if he borrowed a second mortgage. Not surprisingly, lenders don`t like the risk of a second right of pledge.
A subordination agreement allows them to redistribute your mortgage to the first right of pledge and your HELOC to the second deposit position. Let`s look at the basics of subordination, using a home line of credit (HELOC) as the main example. Remember that these concepts are still valid if you have a home loan. Despite its technical name, the subordination agreement has a simple purpose. It assigns your new mortgage to the first deposit position, so it is possible to refinance with a home loan or line of credit. The signing of your agreement is a positive step forward on your refinancing path. The Mortgagor essentially repays it and gets a new loan when a first mortgage is refinanced, which now puts the most recent new loan in second place. The second existing loan increases to become the first loan. The lender of the first mortgage refinancing now requires the second lender to sign a subordination agreement in order to reposition it as a priority when repaying the debt. The priority interests of each creditor shall be modified by mutual agreement by what they would otherwise have become.. . .