A mortgage subordination agreement is a legally binding document that allows one mortgage to take precedence over another in terms of priority. In simpler terms, it is a way for lenders to determine who gets paid first if a borrower defaults on their loan or if the property is sold.

There are two types of mortgage subordination agreements: a first mortgage and a second mortgage. A first mortgage has priority over a second mortgage because it was registered first. A second mortgage takes a backseat to a first mortgage and is therefore subordinate.

The purpose of a mortgage subordination agreement is to allow a borrower to take out a second mortgage while still keeping their first mortgage in place. This is common when a homeowner wants to take out a home equity loan or line of credit. The subordination agreement ensures that the lender of the new loan will get paid second in the event of default.

Lenders may require a subordination agreement when a borrower takes out a second mortgage to ensure that they will not lose their priority position. This can result in a lower interest rate for the borrower because the lender is taking less risk.

It is important to note that a mortgage subordination agreement must be signed by all parties involved, including the borrower, the first mortgage lender, and the second mortgage lender. It is also important to have an attorney review the agreement to ensure that all terms are fair and reasonable.

In conclusion, a mortgage subordination agreement is a necessary tool in the lending industry that allows lenders to determine priority if a borrower defaults on their loan or if the property is sold. It is important for borrowers to understand the terms of the agreement and to have an attorney review the document before signing. By doing so, borrowers can ensure that they are not taking on unnecessary risk and that they are getting the best possible interest rate.