First Mortgage
A first mortgage is the primary loan secured by real estate that has first priority for repayment if the borrower defaults and the property goes into foreclosure. This loan takes precedence over all other liens and mortgages on the property, meaning it gets paid first from foreclosure proceeds.
Example
“The bank holds the first mortgage on the property, meaning they get paid before any other lenders if the owner defaults.”
Memory Tip
Think 'first in line' - like being first in line at a store, the first mortgage gets served first when money is collected.
Why It Matters
First mortgages typically offer the best interest rates and terms because lenders have the lowest risk due to their priority position. Understanding lien priority is crucial when considering additional financing like home equity loans or second mortgages.
Common Misconception
Some borrowers think the first mortgage is simply the first loan they took out, but it actually refers to the loan with first priority position, regardless of when it was originated.
In Practice
You have a $300,000 first mortgage and later take a $50,000 home equity loan, but financial difficulties force foreclosure. The first mortgage lender gets paid in full from the sale proceeds before the home equity lender receives anything, which is why your first mortgage has a 4% rate while the equity loan charges 7%.
Etymology
The term 'mortgage' comes from Old French 'mort gaige' meaning 'dead pledge,' with 'first' indicating primary priority position among creditors.
Common Misspellings
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