Finance
A 'subordination agreement' in real estate financing allows:
AA first mortgage to be paid off and replaced by a new second mortgage
BA senior lienholder to agree to a lower priority position to allow a new, higher-priority lien to be placed on the property✓ Correct
CA lender to assign their mortgage to another lender
DA borrower to reduce their interest rate by agreeing to subordinate their equity
Explanation
A subordination agreement allows a lienholder (usually a second mortgage holder) to agree that their lien will remain subordinate to a new lien (usually a new first mortgage refinancing the existing first). This is common in refinancing when a second mortgage lender must subordinate their lien to the new first mortgage.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
LienA financial claim against a property that serves as security for a debt or obligation, giving the creditor the right to foreclose if unpaid.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Math Concepts
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