Mortgage Dictionary -> First Mortgage
With all the financial terminology that goes around, many people find themselves confused by terms like first mortgage, second mortgage and third mortgage. While we could define the latter two at length, we'll instead focus on the first mortgage and just what it means in this article. So if you're looking to get your first mortgage, you'll want to read on.
What is the Definition of a First Mortgage?
The first mortgage is, simply put, the primary mortgage for the property. It's the one that pays for the value of the house and nothing else. In the case of a default on the loan, the first mortgage has the first claim on the property so if the details of the loan are not worked out by the borrower and the lender, the lender will have more of a claim to the property than a second mortgage lender would. This also means that the first mortgage lender has more of a responsibility as well.
The Facts about First Mortgages
1. They Only Pay for the House. While a second mortgage may promise extra cash to the borrower based on the value of the house, a first mortgage only pays for the house and nothing else.
2. A Lower Interest Rate. One other thing that separates first mortgages from second mortgages is that first mortgages almost always have a lower interest rate. This is because they are usually worth more money to the lender than are second mortgages, which means less of an interest rate is required.
3. They Get the Money First. When you sell your home, it is not the second mortgage lender who gets the money, but rather, the first mortgage lender gets the money. This is because they have the first claim to the home and property so they're naturally entitled to all of the cash, or at least enough to pay off the balance of the mortgage.
4. A Greater Impact on Your Credit Score. While it is definitely true that second mortgages have a significant impact on your credit score, it is in fact the first mortgage that has the biggest impact. That's because the first mortgage is the first big loan you've taken out, and shows other lenders just how worthy you are when it comes to loans and credit. If you don't make your first mortgage payments on time, it can have a devastating effect on your credit score.