Which is true of a second mortgage?

A second mortgage is typically issued at a higher rate of interest compared to a first mortgage. This is because second mortgages are subordinate to first mortgages, meaning they carry a higher risk for the lender. In the event of default, the first mortgage lender has priority in claims against the property. Consequently, lenders charge a higher interest rate on second mortgages to compensate for the increased risk associated with their position in the repayment hierarchy.

Understanding this aspect of second mortgages helps clarify their function in the real estate market, as they are often used by homeowners to tap into equity for additional funding while accepting the higher financing cost as a trade-off for accessing those additional funds.