Key takeaways

  • A first mortgage is the primary or original loan on a home, typically what was used to buy the property.
  • First refers to not only the order in which the loan was obtained, but also the lender's lien position on the property. If your home were to be foreclosed, the lender of the first mortgage would have first claim to the proceeds of the foreclosure sale.
  • Generally, first mortgages are easier to qualify for than riskier second mortgages, such as a home equity loan.

What is a first mortgage?

A first mortgage is the primary or initial loan obtained for a property.

When you get the first mortgage loan to buy a home, the mortgage lender who funded it places a primary lien on the property. This lien gives the lender the first right or claim to the home if you were to default on the loan. Other lenders who have a lien on your home are secondary to the lender of the first mortgage.

How does a first mortgage work?

A first mortgage is typically used to finance the cost of buying a home. Depending on the type of first mortgage you get, you’ll likely need to pay a percentage of this cost upfront, in cash — the down payment — and borrow the rest. Then, you’ll be responsible for making monthly payments until the loan is repaid.

For lenders, the first mortgage — sometimes referred to as having the senior lien position — takes priority over any second mortgage, or junior or subordinate lien, attached to the property.

Let’s say you purchased a home with a mortgage, and later took out a home equity loan (a type of second mortgage). If you were to default, your first mortgage lender would have the first claim to the proceeds from a foreclosure sale. The second mortgage lender would then have a claim to the remaining proceeds, if any. This chain of priority continues if you have multiple liens on the home.

There are some exceptions, however. If you owe property taxes, they’ll typically be repaid first before other claims, and if you’re filing for bankruptcy, a court can decide which claims take precedence.

Example of a first mortgage

Say Sarah buys a home priced at $450,000 with the help of a $360,000 mortgage. This is the first mortgage on the property.

After some time, her home is now worth $530,000, and she has paid down the balance on her first mortgage to $250,000. She then decides to remodel her kitchen and takes out a home equity loan — a second mortgage — for $50,000.

Say Sarah falls behind on payments and is unable to work out a solution with her mortgage lender. The lender now has the ability to start the foreclosure process in order to recoup its losses.

If her home were to sell at auction for $530,000, the first mortgage lender can recoup all of the $250,000 she still owes, and the second mortgage lender can recoup the $50,000. If the home sold for less, though, the first mortgage lender might only receive a portion of the proceeds, and the second mortgage lender might not receive anything at all.

First mortgage vs. second mortgage

Both first and second mortgages are secured by the property itself (meaning the house serves as the collateral for the loan), but a first mortgage is most often used to buy the property, while a second mortgage can be used for any reason, such as:

Second mortgages can also be used to help you buy a property. Many down payment assistance programs are constructed as a first and second mortgage, with the second mortgage covering the down payment and closing costs.

Because they are riskier for a lender, second mortgages generally have higher interest rates than first mortgages. The two most common types of second mortgages are home equity loans, which usually have a fixed rate, and home equity lines of credit (HELOCs), which usually have a variable rate.

If you put down less than 20 percent for your first mortgage, you’ll pay private mortgage insurance (PMI) premiums. This is another key difference when comparing a first mortgage versus a second mortgage, because second mortgages usually don’t require PMI.

Lastly, if you itemize at tax time, you can deduct the interest on your first mortgage up to a certain threshold. You can only deduct the interest on a home equity loan or HELOC if you used the funds to substantially improve or repair your home.

First mortgage Second mortgage
Interest rates Fixed or adjustable Generally fixed with a home equity loan and variable with a home equity line of credit (HELOC)
Mortgage interest tax deduction Deductible on up to $750,000 of combined mortgage debt (or $1 million if loan was obtained before Dec. 16, 2017) Only deductible within $750,000 combined limit if mortgage debt was used to buy, build or make improvements to the property
Mortgage insurance Required if down payment is less than 20% Not required
Size of loan Cost of the property minus the down payment Based on available equity and other factors

Bottom line

A first mortgage is what most people typically think of when they think of a mortgage: It’s the loan that helps you buy a home. It’s first in the sense that it’s the first financing secured by the home, and the lender has the first claim on it.