What is a subordination agreement, and why does it matter?

What is a subordination agreement, and why does it matter?

Refinancing your home comes with its fair share of paperwork. If you have a home equity loan or line of credit, one document may feel particularly daunting: the subordination agreement. Sounds scary, right? Dont worry. Subordination agreements are a normal part of the refinancing process.

Lets walk through the basics of subordination, using a home equity line of credit (HELOC) as our primary example. Keep in mind that these concepts still apply if you have a home equity loan.

What is subordination?

Subordination is the process of ranking home loans (mortgage, HELOC or home equity loan) by order of importance. When you have a home equity line of credit, for example, you actually have two loans Ђ“ your mortgage and HELOC. Both are secured by the collateral in your home at the same time. Through subordination, lenders assign a Ђњlien positionЂќ to these loans. Generally, your mortgage is assigned the first lien position while your HELOC becomes the second lien. (más…)

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