Junior Mortgage

### What is a junior mortgage? - [ ] The first mortgage on a property. - [x] A mortgage that ranks below another mortgage. - [ ] A mortgage for properties valued under a certain amount. - [ ] A mortgage specifically for commercial properties. > **Explanation:** A junior mortgage ranks below another mortgage in terms of priority. In the event of default, the payment to a junior mortgage lender comes after the senior or first mortgage is paid. ### What must happen for a junior mortgage lender to recover their funds in case of default? - [x] The first mortgage must be paid off in full. - [ ] The junior mortgage must be completely independent. - [ ] The property must be sold without considering the first mortgage. - [ ] The lender does not have any real claim to the property assets. > **Explanation:** The first mortgage must be satisfied before any funds can be allocated to the junior mortgage lender in case of a default, prioritizing the senior claim. ### Generally, why do junior mortgages have higher interest rates than primary mortgages? - [x] They are riskier for lenders. - [ ] They are backed by cheaper property. - [ ] They take more administrative work. - [ ] Lenders have less confidence in real estate investments. > **Explanation:** Due to their subordinate status and the increased risk for lenders, interest rates on junior mortgages are typically higher. ### If a buyer acquires a $100,000 primary mortgage and a $20,000 junior mortgage for a property, what is their equity if the purchase price is $130,000? - [x] $10,000 - [ ] $20,000 - [ ] $30,000 - [ ] Zero > **Explanation:** The buyer's equity is calculated by subtracting the combined mortgage amounts from the purchase price ($130,000 - $100,000 - $20,000 = $10,000). ### What is another term used to refer to junior mortgages? - [ ] Senior loans - [ ] Fixed-rate loans - [ ] Adjustable-rate mortgages - [x] Subordinate loans > **Explanation:** Junior mortgages are also known as subordinate loans denoting their secondary position in lien priority. ### Are first mortgages and urgent loans examples of junior mortgages? - [ ] Yes, both are examples of junior mortgages. - [x] No, only second mortgages and other subordinated loans are junior. - [ ] Yes, because they're all liens on property. - [ ] No, junior mortgages only refer to crisis loans. > **Explanation:** Only second mortgages and other subordinated loans are considered junior mortgages, as they rank below the first mortgage. ### Can private lenders offer junior mortgages? - [x] Yes, private lenders can offer junior mortgages. - [ ] No, only federal bodies can provide them. - [ ] Private lenders can only offer first mortgages. - [ ] No lender can prioritize junior loans. > **Explanation:** Both traditional financial institutions and private lenders have the capacity to offer junior mortgages. ### In case of a property being sold due to foreclosure, who gets paid first? - [ ] Junior mortgage lender. - [ ] The homeowner. - [ ] Any private service providers hired by the owner. - [x] First mortgage lender. > **Explanation:** In foreclosure, the first mortgage lender receives payment first, ensuring their loan is paid before addressing subordinate lien holders. ### What can significantly affect the safety of investing in a junior mortgage? - [x] The priority ranking of its lien. - [ ] The maturity due date. - [ ] The exact amount of the loan. - [ ] The homeowner's personal details. > **Explanation:** The priority ranking of a junior mortgage lien heavily impacts its risk and safety as an investment, depending on potentially lower recovery rates. ### Pursuant to selling property under financial duress, in what order do funds get allocated? - [x] First to senior mortgages, then to junior mortgages. - [ ] Equally among all lien holders. - [ ] Predominantly to personal creditors. - [ ] To operational expenses only. > **Explanation:** In selling property under duress, senior mortgages are satisfied first, followed by junior mortgages based on remaining proceeds.