First Mortgage


DEFINITION of 'First Mortgage'

A mortgage in a first lien position on the property that secures the mortgage. A first mortgage has priority over all other liens or claims on a property in the event of default.

BREAKING DOWN 'First Mortgage'

If the loan to value (LTV) ratio of a first mortgage is greater than 80%, lenders generally require private mortgage insurance (PMI). In such a case, it can sometimes be economical for a borrower to limit the size of the first mortgage to an 80% LTV and use secondary financing to borrow the remaining amount needed.

The economics of paying PMI versus using a second loan largely depends on the rate at which a borrower expects the value of his or her home to increase. PMI can be eliminated when the LTV of the first mortgage reaches 78%; however, a second lien, which typically carries a higher interest rate than a first mortgage, must be paid-off, most likely through a refinancing of the first mortgage for an amount equal to the remaining balance of the both the first and second mortgages.

  1. Private Mortgage Insurance - PMI

    A policy provided by private mortgage insurers to protect lenders ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Closed-End Mortgage

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  4. Back-to-Back Commitment

    A commitment to make a second take-out loan that piggybacks another ...
  5. Lien

    The legal right of a creditor to sell the collateral property ...
  6. Loan-To-Value Ratio - LTV Ratio

    A lending risk assessment ratio that financial institutions and ...
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