Subordination Agreement

• The subordination agreement provided by a second mortgage lender legally allows the first mortgage lender access to the first lien position. Normally the second mortgage lenders interests would move into first place on the title once the borrower pays off the existing first mortgage lien. However, the subordination agreement allows the new mortgage lender to jump ahead of the existing second mortgage lender on the title. This agreement must be signed, dated and filed with the county the home resides in when the new first mortgage loan documents.
  
  

Types of Refinances

• Most lenders allow virtually all of the refinance programs available to homeowners who currently have second mortgage liens. Rate and term refinances allow the homeowner to change the interest rate, loan type and amortization term while limiting the amount of cash received at closing. Cash-out refinances allow homeowners access to the equity built in the home. Often lenders limit loan amounts to predetermined percentages of the home's value depending upon the borrower's credit profile and the amount of the second lien.
  
  

CLTV And HCLTV

• A Loan-to-Value, or LTV, is the first mortgages loan balance in relation to the home's value. The Combined Loan-to-Value, or CLTV, measures the percentage of the combined first loan's balance plus the second mortgage balance to the home's value. The HCLTV applies to Home Equity Lines of Credit and measures the first mortgages balance is added to the total line of credit available on the HELOC. Most first mortgage lenders generally restrict the first mortgage loan to 80 percent of the home's value when there is a second mortgage. In addition, the CLTV and HCLTV usually cannot exceed 95 percent of the home's value. Some loan programs, such as cash-out refinances, loans for second homes and loans for investment properties, often restrict these percentages even further.
  
  

Combining Multiple Loans

• Homeowners often combine their first and second mortgages into one first mortgage. Loans underwritten to Fannie Mae and Freddie Mac's guidelines require the second mortgage's only use be for purchasing the home, if the refinance is a rate-and-term refinance. If the second mortgage was obtained after the first or if any part of its was used for anything other than purchasing a home, then the new first mortgage must be a cash-out refinance. Often cash-out refinance mortgages require higher interest rates and stricter approval guidelines.