First mortgage

First mortgage is a term every homeowner should know. Bankrate explains it.

What is a first mortgage?

A first mortgage is the primary loan on a property. A first mortgage has priority over any other claim on the property’s title in the event of default.

Deeper definition

A first mortgage is the primary or initial loan obtained on a piece of real estate. If the home is refinanced, the refinanced mortgage maintains the first mortgage position.

The primary-mortgage lender has the first lien or right to the property should the borrower default. The lender would foreclose on the property, then sell it to recoup its investment. First mortgages are different from second mortgages, which are secondary loans taken out against the available equity.

All mortgages are liens, or legally binding contracts that allow the lender to stake a claim to the property should the borrower stop making payments or otherwise not follow the terms of the contract. As the first lien, the primary mortgage lender would be first in line to be paid from the proceeds of a foreclosure auction. Lenders of home equity loans or lines of credit are secondary to the primary mortgage lender.

First mortgage example

Abby buys a home with a $200,000 mortgage.  This is her first mortgage on the property. Over the next few years, she pays down her mortgage. She now owes $110,000 on the first mortgage. She wants to do some remodeling, so she takes out a home equity loan for $20,000. This is a second mortgage.

If Abby stops making her house payments, her first mortgage lender would force a sale of the house to recoup its $110,000 before the second lender is entitled to try to recover its $20,000.

Use Bankrate’s mortgage refinance calculator to determine whether refinancing is a sound strategy for you.


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