A silent second refers to a second mortgage that comes with very favorable terms.

Such mortgages can sometimes be interest free. Some don’t even require a monthly payment and only requires payment after a first mortgage is fully repaid or that the house is sold.

Silent second mortgages are often used by home buyers who don’t have enough cash for closing.

More often than not, it is used for down payments and settlement costs.

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.