Preferred Debt

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DEFINITION

Debt that is considered more important or has priority over other types of debt. This form of debt obligation has to be paid first and its lien position takes precedence over other debt and equity positions. For example, a first mortgage would be a preferred debt over a second mortgage or a mortgage-backed security holding the mortgage.

INVESTOPEDIA EXPLAINS

The interest from these types of debts such as mortgages and equity loans are tax deductible. The main types of preferred debt include interest on mortgages, equity loans and equity lines of credit. Taxes owed to the IRS and first position in other personal loans would be considered preferred debt as well.


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