It is called "senior" because it has priority over any other loans taken out on the same property. This means that if the borrower defaults on their payments, the senior mortgage lender has the first right to foreclose on the property and sell it to recover their money.
Senior loans (or “senior mortgages” or “first mortgage” or “first-lien” debt holders) are in first position (i.e. they have a first-lien priority). Junior loans (or “junior mortgages” or “second-lien” debt holders or mezzanine capital) have a lower priority than a first or prior (senior) lender.
Senior debt is a company's first tier of liabilities, typically secured by a lien against some type of collateral. Senior debt is secured by a business for a set interest rate and time period. The company provides regular principal and interest payments to lenders based on a preset schedule.
Senior loans may not be fully secured by collateral, generally do not trade on exchanges, and are typically issued by unrated or below-investment grade companies, and therefore are subject to greater liquidity and credit risk.
A Unique Fixed Income Asset Class
These loans are then packaged together and then sold to investors. Typically, senior loans are often issued to companies with credit ratings below investment-grade. This provides them with high starting yields above the rates of investment-grade corporate bonds.
Yes, seniors on Social Security can get a mortgage. Lenders often consider Social Security as a stable form of income. However, eligibility will also depend on other factors like credit history, other sources of income, and existing debts.
Broadly speaking, private credit, including senior private credit, can be either loans, bonds or other credit instruments that are privately issued by companies or through private offerings. They are referred to as “private” because they are not listed on security exchanges nor available through public markets.
What are senior loans? Senior loans are below investment grade debt obligations. They are underwritten by banks and are then syndicated out to a broad array of institutions such as Invesco, resulting in a liquid secondary market.
Interest margins. The more junior the debt, the higher the rate of return. Thus, while senior debt may earn margins of between 225-325 basis points, second lien debt typically earns margins of between 400-600 basis points, and mezzanine debt earns margins of between 800-1000 basis points.
What is it? Labelled 'first out' in the US and 'super senior' in Europe, this is a revolving credit facility (RCF) which has priority over other pari passu debt in relation to the proceeds of enforcement of collateral and, in the US, guarantee recoveries.
For example, let's say a company takes out a loan and uses its property as collateral. The lender who issued the first lien on the property is considered the senior lien holder. If the company defaults on the loan, the senior lien holder gets paid back before any other lien holders.
Senior debt can be either secured or unsecured. Secured senior debt is backed by specific assets, such as real estate, equipment or inventory, which serve as collateral. If the borrower defaults, the lender can seize the collateral to recover their losses.
Key Takeaways
Junior debt refers to bonds or other debts that have been issued with lower priority than senior debt. Also known as subordinated debt, junior debt will only be repaid in the event of default or bankruptcy after more senior debts have been first repaid in full.
In a recessionary environment, loans offer downside risk mitigation by being senior which means they are the highest priority to be repaid in the event of default. Senior secured assets may offer added risk mitigation throughout recessionary periods.
In the event of a default, a senior lender, knowing of the existence of a junior lien, will usually give the junior lender a chance to step in and make the delinquent payments. Then the junior lender will foreclose against the collateral property.
Example 1: A Construction Company's Senior Secured Loan
The loan is "senior," meaning if BuildCoA struggles financially, this loan will be repaid before any other debts the company owes. If BuildCoA defaults on the loan, the bank has the right to take those construction trucks and sell them to recover its money.
Senior bank loans are repackaged debt obligations comprised of several loans that banks make to companies with lower credit ratings. They are secured loans that come with repayment priority over other debt obligations.
Therefore, because their income is protected from debt collection, seniors do not need to worry about losing any of their monthly income to debt collector garnishment. Concern about losing monthly retirement income to garnishment by a debt collector should not be a reason to file a bankruptcy.
To qualify for a personal loan, you generally need a minimum credit score of at least 580 — though certain lenders have even lower requirements than that. However, your chances of getting a low interest personal loan rate are much higher if you have good to excellent credit, typically a score of 740 and above.
In its most basic form, dry powder is a term that refers to the amount of cash reserves or liquid assets available for use. These cash reserves or short-term marketable securities are usually kept on hand to cover future obligations that may or may not be foreseen.
A credit for taxpayers: aged 65 or older OR retired on permanent and total disability and received taxable disability income for the tax year; AND. with an adjusted gross income OR the total of nontaxable Social Security, pensions annuities or disability income under specific limits.
Reverse mortgages
A reverse mortgage, also known as a home equity conversion mortgage (HECM), is the most common mortgage taken out by seniors: Backed by the FHA, It allows homeowners 62 and older to borrow against their home's value.
Can You Borrow from Social Security? Not anymore. A provision that was discontinued in 2010 allowed you to collect benefits at 62, then repay the loan at 70 and re-file for the higher benefits you receive at that age.
It's a loan that allows homeowners aged 62+ to tap into some of their home equity for additional cash: Without having to sell the home. Without having to make monthly mortgage payments (keeping current with property taxes, insurance, and maintenance required)