What does the priority amount actually mean?
The priority amount is essentially the figure the bank has first claim over. If you owe them money and the property needs to be sold (for example, under a mortgagee sale), this amount helps cover what’s owed to the bank, including the costs involved in selling the property.
In simple terms, the priority amount signals to other lenders where they stand. For example, if you take out a second mortgage or a caveat loan, those lenders will know that the bank has first rights to recover the priority amount before any funds can go to secondary lenders.
Why is it set higher?
It’s sit at a much higher figure than what you owe them for two main reasons.
- The amount has to cover any additional costs that might be incurred in a mortgagee sale type scenario, such as unpaid interest, lawyers, real estate and other associated costs.
- If you require a top up on the home loan for things like, a boat, renovations in the future, the higher amount means you do not have to engage a lawyer(to adjust the priority amount).
When do you notice it?
When signing mortgage documents
The priority amount is usually specified in the mortgage or registered security instrument. The solicitor or bank will point this out during the signing of loan documents.
When reviewing the property title
If clients (or their solicitor) review the property’s title (e.g. via LINZ), the registered mortgage will often state the priority amount on the title register.
When refinancing or restructuring lending
Sometimes it comes up when the bank reviews or restructures lending and updates security, especially if additional lending is being secured by the property.
When applying for secondary lending
If a client applies for a second mortgage, caveat loan, or private lending, the second lender will usually review the existing mortgage priority amount to assess their position in case of default.
