A silent second refers to a second mortgage that comes with very favorable terms.
Silent second mortgages are often used by home buyers who don’t have enough cash for closing.
For example, a house purchase at $150,000 might require a 20% down payment of $30,000. The borrower might then borrow $24,000 from a silent second and pay only $6,000 out of his own pocket.
However, a problem can arise when the main lender discovers the presence of a silent second.
The reason being that it would place a lien on the property as well.
Other than that, the debt of the second might have to be taken into considerations when calculation debt ratios and other credit assessment equations.