Second Mortgage

Ok. You know what a first mortgage is. It is otherwise cleverly named a mortgage. It’s just a loan on a house. You paid 400 grand for this baby. 100 grand down. 250 grand in a first mortgage. And there’s still 50 grand you owe.

Where’s that 50 large coming from? The bank wouldn’t loan you any more on a first mortgage that was costing you 6 percent a year to rent.

So you had to get a second mortgage, which, should things, um, go awry. And you become a statistic, sits fully behind the first mortgage in the priority stack.

So in a bankruptcy situation, the first mortgage gets fully paid, along with any fees associated with it, as well as any interest accrued on that first mortgage account.

Any cash left over then gets attributed to that second mortgage. So, not surprisingly, second mortgage money costs more to rent than first mortgage money, because the risk of non-payment is meaningfully higher.

Especially when the borrower does, uh, this for a living.