Glossary
Deed of priority
Also called: priority deed
A deed of priority is an agreement between lenders who hold security over the same property. It sets out the order in which they are repaid and often caps the amount the first-ranking lender can claim ahead of the second.
An example
A second mortgage lender agrees to lend behind a bank. Before settlement, the two lenders sign a deed of priority fixing the bank's priority amount, so later redraws on the bank loan do not reduce the second lender's position.
Why it matters
Without a priority arrangement, a first mortgagee's claim could grow and erode the equity a second lender relied on. For borrowers, the deed can add time and legal cost, so it is worth asking early whether the first lender will consent and sign.
Points to check
If you are arranging a second loan, ask early whether the first lender will sign a deed of priority, how long it usually takes and whether it charges a fee. Check the priority amount, because a cap that is too low or too high can affect both lenders. Make sure the deed covers interest and costs as well as principal, and that its terms match the loan documents for both facilities.