If a loan is in a subordinate lien position to the first loan on a property, what is it called?

When a loan holds a subordinate lien position to a first loan on a property, it is referred to as a second mortgage. This type of mortgage is created when a borrower takes out an additional loan against the same property, securing it with the equity that has built up through the first mortgage. The term "second mortgage" highlights that it comes after the first loan in terms of claim priority; in the event of foreclosure, the first mortgage lender is entitled to repayment before the second mortgage lender.

In essence, a second mortgage can enable the borrower to access additional funds based on the existing equity of their home but involves additional risk since it is in a subordinate position. This designation also affects how lenders view the risk of the loan, as the second mortgage lender will face potential losses should the property be sold to satisfy the first mortgage. Understanding the hierarchy of liens, such as the distinction between a first and second mortgage, is essential for real estate professionals and those involved in lending practices.