Second position security: implications
How lien position changes rate, amount and risk.
What position means
The first lender is paid before the second. The second therefore carries more risk.
Effects on your terms
- A higher rate than first position
- An amount limited by existing debt
- A shorter term, usually
- Sometimes the first lender’s consent
What the second lender can lose
In a forced sale, the first lender is paid first.
The second takes only what remains. Sometimes nothing remains.
Limits on the amount
The two loans combined rarely exceed seventy-five percent of value.
A large first loan therefore leaves little room for a second.
The first lender’s consent
Many contracts forbid new debt without written authorization.
When second position makes sense
It makes sense when the penalty on the first loan is high.
It also makes sense for a short need, repaid quickly.
Run the full calculation before choosing between the two routes.
What to read in the contract
Check whether the second lender can demand immediate repayment.
Also check what happens when the first loan is renewed.
These two clauses weigh as much as the posted rate.
