What a second mortgage is
It is a mortgage registered over a property that already carries a first mortgage. The existing facility stays in place, and the new lending sits behind it on the title.
How ranking behind a first mortgage works
If the property is sold or recovery becomes necessary, proceeds go to the first mortgage and the costs of the process before a second-ranking lender receives anything. Whatever is left over is what the second mortgage is repaid from.
When a business would use one
- Working capital where the first mortgage is already at its limit
- Bridging a defined gap pending a sale or refinance
- Funding an opportunity that doesn’t fit the first lender’s criteria
- Releasing equity without refinancing the whole first facility
What’s assessed
The combined loan-to-value position, being the first mortgage plus the proposed second loan measured against the property’s assessed value, the standing of the first mortgage, the business purpose, and the exit.
What it means for cost and risk
Second-ranking lending is priced higher to reflect the additional risk, and the equity buffer sitting behind it is thinner than for first-ranking lending.
Read the full guide for how ranking and recovery actually work: Second mortgage finance for a business purpose.