Final answer:
A second mortgage carries greater risk to the lender because of the higher perceived riskiness of the loan, lower priority in recovering funds compared to a first mortgage lender, and higher interest rates.
Step-by-step explanation:
A second mortgage carries greater risk to the lender because the perceived riskiness of the loan is higher compared to a first mortgage. When a borrower takes out a second mortgage, they already have an existing first mortgage on the property. If the borrower defaults on their payments, the first mortgage lender has a higher priority to recover their funds compared to the second mortgage lender.
This means that if the property is sold to repay the debts, the first mortgage lender will be paid first, while the second mortgage lender may not receive the full amount owed. In addition, a second mortgage often has a higher interest rate compared to a first mortgage, reflecting the increased risk to the lender. This higher interest rate can make it even more difficult for the borrower to make the required payments, further increasing the risk of default.