Definition of Subordinate Financing

Subordinate financing is debt that orders behind a first secured lender’s debt such as a first mortgage. Generally all mortgages are secured by the assets (usually properties) for which loans are given. The lender’s risk in subordinate financing is higher than that of senior lenders because the claim on assets is lower.

Explanation of Subordinate Financing

When subordinate financing is used to buy a property, let’s say a home; generally two separate mortgage checks are written every month. Also, interest rates on subordinate financing such as second mortgages tend to be higher than on first mortgages. Subordinate financing can require two sets of loan fees, discount points and other costs.