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A second mortgage (or bond
as it is better known in South Africa) typically refers
to a secured loan (bond / mortgage) that is subordinate
to another loan against the same property. In real
estate, a property can have multiple loans or liens
against it. The loan which is registered with county or
city registry first is called the first mortgage or
first position trust deed. The loan registered second is
called the second mortgage. A property can have a third
or even fourth mortgage, but those are rarer.
Second mortgages are
called subordinate because, if the loan goes into
default, the first mortgage gets paid off first before
the second mortgage. Thus, second mortgages are riskier
for lenders and generally come with a higher interest
rate than first mortgages. In most cases, a second
mortgage takes the form of a home equity loan and the
two are synonymous, from a financial standpoint. The
difference in terminology is that a mortgage
traditionally refers to the legal lien instrument,
rather than the debt itself.
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