SECOND MORTGAGE

One thing that always confused me in Hollywood shows: the second mortgage. Characters casually say, “We’ll take out a second mortgage!” as if it’s a normal errand. Meanwhile, in the Philippines, that concept barely exists. So how can the same house be collateral twice? And in a default, who gets paid first?

My brother in the US finally broke it down for me.

When you buy a house in the States, you almost always take out a loan — that’s your first mortgage. As you chip away at that loan through monthly amortizations, you slowly build equity, which is basically the portion of the home you actually own.

Now here’s the Hollywood part:

You can borrow again using that equity as collateral. That second loan becomes your second mortgage or home equity loan.

Example:

You buy a USD 600,000 home. You put 10% down, borrow 90%. After years of payments, you now own 50% of the home (USD 300,000). That USD 300,000 — the part you’ve already paid — becomes collateral for another loan.

But what happens if you default? Who gets the house? Who gets paid?

Here’s the simple hierarchy:

First mortgage lender gets paid first.

They have the “senior lien” — top priority. From the foreclosure sale, they get fully paid before anyone else touches a cent.

Second mortgage lender is next… if anything is left.

They only get whatever remains after the first lender is satisfied.

If the foreclosure proceeds aren’t enough, the second lender often gets nothing.

This is why second mortgages are riskier for banks — their collateral is weaker because someone else has dibs on it.