Question:

What happens with subordination of mortgage loan?

Answer:

The subordination of mortgage loan results in a second mortgage retaining its junior position while the first mortgage is being refinanced separately from any other debt obligations. If it were not for the mortgage subordination agreement, the second mortgage (or home equity loan or line of credit) could automatically take first lien position.

If you qualify for home loan subordination, you enjoy the benefit of keeping your home equity loan available to you while refinancing.

Some first mortgage lenders will simply pay off the second lien loan with the refinance transaction, to make sure their mortgage is recorded in first lien position.

General Requirements from Junior Lien Lender to Approve Mortgage Loan Subordination

Suggested home loan subordinate has to be current with up-to-date payments.

The refinanced first mortgage monthly payment increase is likely to be subject to certain limits.

Cash-out and debt consolidation is generally not allowed.

Should the junior lien lender agrees to remain in subordinate position, they are likely to request that all fees are paid by the lender/borrower initiating the subordination request.

If the amount of the refinanced first mortgage is going to increase, subordination review might take longer until all details are explained to the junior lender's satisfaction.

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