You are here: Home Tools FAQ Why is the priority amount much higher than my loan amount?

Why is the priority amount much higher than my loan amount?

It is common for mortgage lenders to set their priority amount at 1.5x the value of the security.

The priority amount (or priority sum) is a figure recorded in the mortgage

A mortgage will normally contain a priority sum. The mortgagee is entitled to receive money owing to it (including principal, interest and other costs) from the sale of the property up to this priority sum in order to discharge its mortgage. If the mortgagee is owed more than the priority sum, it may be forced to discharge its mortgage upon receipt of funds up to the priority sum. Normally a mortgagee will establish a priority sum that is higher than its loan amount.

It is common for lenders to set their priority amount at 1.5x the value of the security.  On the face of it this gives the lender 'head room' of 50% of the value of the security. 

The justification for registering such a high priority sum is that this allows the lender to increase its lending without necessarily having to vary it's mortgage.  So, when a security increases in value and the borrower wants to borrow more against the security, the lender remains well covered for quite large 'relative' increases in its lending.  This way, the lender need only vary its loan agreements and this won't necessarily entail you (the borrower) incurring legal costs to involve a solicitor in varying the mortgage (by increasing the lender's priority sum).