Subordination
Subordination is the process of one lender agreeing to be in a lower lien position relative to another lender. In most cases, this means a second mortgage lender agrees to remain in second position when the first mortgage is refinanced. Without subordination, a refinance could disrupt the lien priority that protects existing lenders.
Lien priority determines who gets paid first in a foreclosure. In most states, the first recorded mortgage has first priority—it gets paid in full before any remaining proceeds go to junior liens. When you refinance your first mortgage, technically the new loan records after your existing second mortgage or HELOC, which would push the new first mortgage to second position. Subordination fixes this by getting the junior lienholder to agree that the new first mortgage gets priority.
Subordination is typically required when: refinancing a first mortgage while keeping an existing HELOC or second mortgage; taking out a new second mortgage while the first mortgage remains in place; or when the property has any existing liens that need to be reordered.
The subordination agreement is a legal document signed by the junior lienholder and recorded with the county. Most HELOC and second mortgage lenders will subordinate routinely for a borrower in good standing, often for a fee of $150–$300. However, if your combined loan balances after refinancing exceed their LTV guidelines, the lender may refuse to subordinate, which would block the refinance.
Key Takeaway
Subordination is the process of one lender agreeing to be in a lower lien position relative to another lender. In most cases, this means a second mortgage lender agrees to remain in second position when the first mortgage is refinanced. Without subordination, a refinance could disrupt the lien priority that protects existing lenders.
Related Terms
Frequently Asked Questions
Whenever you refinance a first mortgage while keeping a second mortgage or HELOC open. The lender who holds your second lien must agree to remain subordinate to the new first mortgage.
Yes. If your combined LTV after refinancing exceeds the junior lender's guidelines, or if you're behind on the HELOC, they may decline. This can block your refinance unless you pay off the second lien first.
Typically $150–$300 charged by the junior lienholder. This fee may appear in your refinance closing costs. Some lenders waive it for customers in good standing.
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