A second mortgage is one that is created when the borrower offers the property for a second time as security while the first lender still has a mortgage secured on the property. The new lender takes a second charge on the property;
the original lender retains the deeds and its charge takes precedence over subsequent charges. This means that, in the event of a sale due to default, the original lender’s claim will first be met in full (if possible) and, if sufficient surplus then remains, the second mortgagee’s charge will be met. Lenders will, of course, only offer a second mortgage if there is sufficient equity in the property and, since second mortgages represent a higher risk to lenders, they are likely to be offered at higher rates of interest than first mortgages.